The lending environment, particularly for the small businesses, dried up post-recession. This means that a small business have to plan systematically about raising funds and should have other options in mind before approaching a traditional bank.
George Cloutier, CEO of American Management Services, said that funds are readily available for businesses that are creditworthy and have high scoring alongside the strongly rooted business. Here is a general approach that small businesses should adopt while seeking a loan.
- Bank Loan – Small businesses should still consider seeking the loan from traditional banks, which typically charge lower interest rates and hold a reputation of dependable lenders. The problem is that businesses give up on these banks after facing rejection from three or four banks. At the same time, the onerous terms specified banks disappoint small enterprises, but they should try to remain persistent until the favorable response comes through, advises McKean. Also, start-ups should consider taking smaller loans instead of asking for all the funds at one go.
- Small Business Administration Loans – If a business has failed to get the loan approved from a traditional bank then it could approach Small Business Administration or SBA for a loan. SBA program is designed to provide assistance to budding enterprises by directing them banks, which are specifically looking to offer loans to small businesses. However, banks recommended through SBA lay greater emphasis on cash flow, business plans and profit forecasts before lending. SBA can also ask businesses to contact counselling centers that can help them improve performance and become eligible for loan approval.
- Alternative Lenders – Lastly, if small businesses do not find the first two options viable or their credit score is below standards, then they can approach an alternative lender or online lending platforms. These usually include term loans, merchant cash advance loans and other instruments. However, interest charged by such lenders is typically much higher than the traditional banks but lower than the credit card interest. Business should completely verify and inquire about any lending platform before signing loan terms to ensure that the company is legal.