Small Business Loan Sources: A little creativity
and a lot of determination can get you the money you need
by Lisa Phillips
March 2008
and a lot of determination can get you the money you need
by Lisa Phillips
March 2008
| Copyright RebuildCreditScores 2008. All Rights Reserved |
Banks often neglect new and small businesses when it comes to financing and, because of the
recent credit crunch, many banks have tightened their underwriting standards.
The small business owner has to begin to seek alternative small business loan sources. Being
creative and thinking outside the box just may get you the financing your small business needs.
Some ideas to get you started are listed below:
recent credit crunch, many banks have tightened their underwriting standards.
The small business owner has to begin to seek alternative small business loan sources. Being
creative and thinking outside the box just may get you the financing your small business needs.
Some ideas to get you started are listed below:
Borrow from Your Savings
Banks and other lenders typically expect small business owners to have invested at least 30% of
their own capital in initial start-up financing. Tapping into your savings is probably the best
method of financing your business. You can loan the business your money and pay yourself
back down the road. Using your own funds is probably the best method of financing.
Angel Investor
Angel investors look to invest in businesses that return a higher profit than a traditional
investment. Many angel investors are successful entrepreneurs who want to help other
entrepreneurs get their business off the ground. Angel investors look for businesses that can
compete in an industry and that have experienced some prior success.
Angel investors usually come at the stage of the business where the business already has some
funding but needs a significant amount more to take the business to the next level. Funding
typically ranges from $150,000 to over $1millon. Financing from an angel investor is going to be
expensive. The costs may range from 10 to 50 percent of a company’s equity. The angel investor
may even charge a monthly retainer in the form of management fees.
SBA
A good source for a small business loan is the SBA. SBA loans do not come directly from the
Small Business Administration. The SBA assists in obtaining a loan by guaranteeing the small
business loan you get from the bank. The SBA is not a direct lender. Banks are willing to fund the
business because the SBA says it back the loan in case of default. The SBA guarantees 80% of
the loan. There are different types of SBA loan programs available.
Community Express Loans
Community Express Loan is administered through the SBA loan program and is available at
selected lenders. This loan program is for pre-designated geographic areas serving mostly low
and moderate income individuals and new small businesses. The program also includes technical
and management assistance, which is designed to help increase the chances of success for the
small business.
Micro Business Loans
This loan program provides small loans to start-up, home-based or micro-businesses. It was
designed to meet the needs of entrepreneurs who need financing assistance to start or expand
their business. You can borrow as little as $1,000 up to $35,000. Loans must be repaid within six
years. The SBA provides low-cost loans and grants to non-profit intermediaries such as
community economic development centers which redistribute the funds to qualified small
businesses. General guidelines are established by the intermediary agency. Read More
Patriot Express Loan
The SBA has launched a new loan program for military service members, veterans and their
spouses called the Patriot Express Loan Initiative. The Patriot Express Loan builds on the more
than $1 billion in loans the SBA guarantees annually for veteran-owned businesses. The loan
can be used to establish or expand a small business and the maximum loan amount is $500,000.
Read more
Social Lending
Peer to peer lending is not a new concept but the Internet has made it easier. This type of
lending matches borrowers directly with lenders, circumventing banks and other middle-men.
Peer to peer lending is a great alternative to traditional banks’ stringent automated credit scoring
system. With peer to peer lending, a typical loan could be funded by as many as 100 people,
thereby increasing the chances your loan will get funded. This type of loan is also known as
person-to-person lending or social lending. These types of loans can be a great resource for
entrepreneurs.
Read more on Social Lending.
Partnerships
Seek a partner who has the funds to invest. You may have the knowledge but little money. A
partnership can be developed for a short period of time. You can construct an agreement to buy
that partner out at a later time.
Friends and Family
Not surprisingly, more than 50% of all start-up costs for new entrepreneurs come from friends
and family. Friends and family desire to see loved ones succeed and follow their dreams. If your
credit is weak you are more likely to get a short-term loan from a friend or family member
because they evaluate your character, not your credit scores. This form of lending has so
evolved that there is now a website which will help you facilitate a loan between friends and
family. www.virginmoneyus.com
Borrow money from the Bank or Credit Union
If you are trying to borrow $50,000 then the bank would like to see you that you have invested
$15,000 of your own funds into your venture. I was recently approached by a new business start-
up seeking capital. The idea was unique and potentially very profitable. The business and
marketing plans were excellent. However, when I asked the business owner how much of their
own money they had invested in the business, to my surprise, the answer was zero.
The business owner stated they did not want to tie up their own money in the business. Well, as
a potential investor, I am not willing to invest in an idea that the business owner is unwilling to
invest in. Banks and lenders are the same way. If you don’t fully believe in the profitability of your
idea and put your own money behind it, no one else will. If you are going to approach a bank be
prepared to submit a good solid business plan along with your some of your own money to invest
in the business.
There are some banks that only require financial information and the process is much quicker.
Be prepared to have a good credit score when using this low documentation method.
Commercial Finance Companies
Commercial Finance Companies finance equipment and inventory purchases. Small businesses
involved in manufacturing and wholesaling can benefit from commercial finance companies
because of their collateral. Start-up businesses usually cannot qualify for these types of loans
because commercial finance loans tend to be highly collateralized.
These loans can be more expensive than a traditional bank business loan. For established
business these loans can be a good alternative to traditional banks as their credit criteria is less
stringent and commercial finance companies are willing to take on riskier loans. The assets used
to secure the loan must be immediately accessible and marketable.
Banks and other lenders typically expect small business owners to have invested at least 30% of
their own capital in initial start-up financing. Tapping into your savings is probably the best
method of financing your business. You can loan the business your money and pay yourself
back down the road. Using your own funds is probably the best method of financing.
Angel Investor
Angel investors look to invest in businesses that return a higher profit than a traditional
investment. Many angel investors are successful entrepreneurs who want to help other
entrepreneurs get their business off the ground. Angel investors look for businesses that can
compete in an industry and that have experienced some prior success.
Angel investors usually come at the stage of the business where the business already has some
funding but needs a significant amount more to take the business to the next level. Funding
typically ranges from $150,000 to over $1millon. Financing from an angel investor is going to be
expensive. The costs may range from 10 to 50 percent of a company’s equity. The angel investor
may even charge a monthly retainer in the form of management fees.
SBA
A good source for a small business loan is the SBA. SBA loans do not come directly from the
Small Business Administration. The SBA assists in obtaining a loan by guaranteeing the small
business loan you get from the bank. The SBA is not a direct lender. Banks are willing to fund the
business because the SBA says it back the loan in case of default. The SBA guarantees 80% of
the loan. There are different types of SBA loan programs available.
Community Express Loans
Community Express Loan is administered through the SBA loan program and is available at
selected lenders. This loan program is for pre-designated geographic areas serving mostly low
and moderate income individuals and new small businesses. The program also includes technical
and management assistance, which is designed to help increase the chances of success for the
small business.
Micro Business Loans
This loan program provides small loans to start-up, home-based or micro-businesses. It was
designed to meet the needs of entrepreneurs who need financing assistance to start or expand
their business. You can borrow as little as $1,000 up to $35,000. Loans must be repaid within six
years. The SBA provides low-cost loans and grants to non-profit intermediaries such as
community economic development centers which redistribute the funds to qualified small
businesses. General guidelines are established by the intermediary agency. Read More
Patriot Express Loan
The SBA has launched a new loan program for military service members, veterans and their
spouses called the Patriot Express Loan Initiative. The Patriot Express Loan builds on the more
than $1 billion in loans the SBA guarantees annually for veteran-owned businesses. The loan
can be used to establish or expand a small business and the maximum loan amount is $500,000.
Read more
Social Lending
Peer to peer lending is not a new concept but the Internet has made it easier. This type of
lending matches borrowers directly with lenders, circumventing banks and other middle-men.
Peer to peer lending is a great alternative to traditional banks’ stringent automated credit scoring
system. With peer to peer lending, a typical loan could be funded by as many as 100 people,
thereby increasing the chances your loan will get funded. This type of loan is also known as
person-to-person lending or social lending. These types of loans can be a great resource for
entrepreneurs.
Read more on Social Lending.
Partnerships
Seek a partner who has the funds to invest. You may have the knowledge but little money. A
partnership can be developed for a short period of time. You can construct an agreement to buy
that partner out at a later time.
Friends and Family
Not surprisingly, more than 50% of all start-up costs for new entrepreneurs come from friends
and family. Friends and family desire to see loved ones succeed and follow their dreams. If your
credit is weak you are more likely to get a short-term loan from a friend or family member
because they evaluate your character, not your credit scores. This form of lending has so
evolved that there is now a website which will help you facilitate a loan between friends and
family. www.virginmoneyus.com
Borrow money from the Bank or Credit Union
If you are trying to borrow $50,000 then the bank would like to see you that you have invested
$15,000 of your own funds into your venture. I was recently approached by a new business start-
up seeking capital. The idea was unique and potentially very profitable. The business and
marketing plans were excellent. However, when I asked the business owner how much of their
own money they had invested in the business, to my surprise, the answer was zero.
The business owner stated they did not want to tie up their own money in the business. Well, as
a potential investor, I am not willing to invest in an idea that the business owner is unwilling to
invest in. Banks and lenders are the same way. If you don’t fully believe in the profitability of your
idea and put your own money behind it, no one else will. If you are going to approach a bank be
prepared to submit a good solid business plan along with your some of your own money to invest
in the business.
There are some banks that only require financial information and the process is much quicker.
Be prepared to have a good credit score when using this low documentation method.
Commercial Finance Companies
Commercial Finance Companies finance equipment and inventory purchases. Small businesses
involved in manufacturing and wholesaling can benefit from commercial finance companies
because of their collateral. Start-up businesses usually cannot qualify for these types of loans
because commercial finance loans tend to be highly collateralized.
These loans can be more expensive than a traditional bank business loan. For established
business these loans can be a good alternative to traditional banks as their credit criteria is less
stringent and commercial finance companies are willing to take on riskier loans. The assets used
to secure the loan must be immediately accessible and marketable.
 | 8 Steps to Start a Business | |
| How to Structure your Business | |
| Social Lending for Business Loans | |
| Business Loans for Veterans | |
Related Topics
|
Micro Business Loans
Do you need just a little cash to grow your business
try a microloan from the SBA.
10 Steps to Building Business Credit
Building business credit can be accomplished
regardless of your personal credit history.
Business Loan Sources
A little Creativity and al lot of determination can get
you the money you need.
Business Opportunities
Home-based business opportunities. Earn extra
income from your computer.
Do you need just a little cash to grow your business
try a microloan from the SBA.
10 Steps to Building Business Credit
Building business credit can be accomplished
regardless of your personal credit history.
Business Loan Sources
A little Creativity and al lot of determination can get
you the money you need.
Business Opportunities
Home-based business opportunities. Earn extra
income from your computer.
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