Starting a business is not a cost-free endeavor, and in fact, many businesses choose to take out a loan to cover expenses. Now is a good time to find a small business loan, and according to SBA.gov, now is the best time in the last four years – banks are “reporting the biggest increase in lending to small businesses” in as much time.
We are here to help you find the best small business loan for your business needs, and to provide tips for doing so.
1. Make sure you have a sound business plan
Before attempting to obtain a loan, make sure you have a business plan for your idea, as those who will be willing to provide you with a loan want to be sure that they will get their money back. A sound business plan should serve to provide some evidence of that.
2. Look for a low interest rate
Obviously you want to find a lender who can provide you with the lowest possible interest rate. Consider striking a deal with people you know who have capital, and asking for a loan that has a lower interest rate than your bank would offer you.
Banks base your interest rate on things like your credit history and the size of your loan (according to Chron.com, there is usually a higher interest rate for loans under $100,000) – once you have your rate quote from a reliable bank, ask a friend to undercut that by 10% or more. If your friend trusts you, this could be a very good opportunity for both you and your friend, as your friend could stand to make more money than if he or she had money in the market.
3. Try the SBA’s Loans and Grants Search Tool
Not sure what type of loan or grant you might qualify for? Use the U.S. Small Business Association (SBA) Loans and Grants Search Tool to try to hone in on that. Things like where your business is located and what your ownership structure is (i.e., are you woman or minority-owned?) can have a real impact on the types of loans available to you.
4. Look to your city
Very often the office of economic and workforce development in your city will have small business loans available. A great example is that of San Francisco, where (according to San Francisco Office of Economic and Workforce Development) “microloans of up to $50,000 (are available for) small businesses operating in San Francisco that create and retain jobs for low-to-moderate income San Francisco residents. RLF microloan interest rates will range from 4% to 6% with a loan term not to exceed 5 years.”
Make sure to inquire with your city about loans that might be available to small businesses within the city, state, and federally.
5. Look at your community bank as an option
According to SBA.gov, “as part of the Small Business Jobs Act of 2010, community banks have increased their lending to small businesses across the country to the tune of $3.5 billion.” This is based on information gleaned from a US Treasury blog, so consider the source more than accurate.
6. Ask your friends in small business
Odds are, if you are an entrepreneur and own a small business, you likely have friends who have done the same. Ask them how they funded their business and where they might have gotten a loan – they might be able to introduce you to their source or point you in the right direction of someone who can help.
7. Join local small business networking groups
Networking groups have leads on all sorts of resources, and often have members from local banks. Don’t miss the opportunity to network with like-minded individuals and folks who can help you build your business in many ways – not just in attempting to find a loan.
8. Good credit is important
Just as with personal loans, having good credit is important in obtaining a small business loan. Try to build your business credit, as it will make you more eligible for small business loans.
9. Consider an alternative small business loan
Check out sites like Kabbage.com – according to a recent article in USA Today, “these cash-flow lenders are using software that reviews online sales, banking transactions and comments on social-media sites, among hundreds of other criteria, to make loan decisions within minutes instead of weeks or months.”
With loans as high as $150,000, Kabbage and related sites could provide you with the loan you need much more quickly than a traditional lender could, and without a great deal of time having passed before you get your cash. Consider, however, that the catch is that interest rates can be much higher than traditional lenders would offer.
So when considering a loan for your small business, whether it’s a startup loan, you need the money to cover you between investments, or money you need for some other reason, consider these helpful tips.