Before diving into the lengthy applications of a small business loan (often around 30 hours of paperwork), compare all of your options. Just because bank loans have been around longer doesn’t mean they are the best fit for your modern business operations.

What Is A Small Business?

The SBA defines a small business as a company that has up to 500 employees, is a privately owned corporation, partnership, or sole proprietorship, and makes under a certain amount of revenue depending on the industry. The number of employees to be a small business can go as low as 250 and as high as 1,500 depending on the industry.

Small businesses are by no means small except in comparison to multinational corporations. With hundreds of employees and millions of dollars of revenue flowing through, “small” businesses makeup approximately over 99 percent of the companies in America and provide a crucial amount of jobs to the economy.

A small business is the backbone of America. In order to grow, debt must be financed first. To provide opportunities for a crucial sector of American employment, lenders and funders offer different programs for each business’s cash flow. Some companies might need a longer term with lower payments, while others a shorter term with higher monthly or weekly payments. Every small business is different depending on the industry, location, size, and materials used. There’s no reason a cookie cutter loan plan should be expected to work for this diverse, robust group.

Why Do Businesses Need Loans?

When looking at the numbers and interest rates, you might wonder, “should your business take out a loan?” If you’re looking at loans, you probably have something that needs funding. Often it’s for commercial construction, expansion, revamping new locations, upgrading equipment, payroll, stocking up on inventory, investing and marketing, and much more.

Some business owners take out a loan to build their credit for other purchases like buying a building, getting a credit card or getting better rates for a larger amount of funding later. Loans are a common way to build credit, in fact some of the reason why businesses have low credit scores isn’t because the business is bad, but rather that they’ve never done anything to build it. Thankfully, alternative lenders like New York Tribeca Group don’t rely heavily on credit scores to provide funding but instead, look at the overall health of a business.

Loans might seem like unnecessary interest and fees. If you need to expand, why not save up for it? Some businesses have unforeseen circumstance such as a gap in payroll they need help coasting over until a client pays. Others are stuck in small profit margins and need a boost to expand their revenue, and that boost can only come from outside funding. The economy relies on debt to grow. Just like student loan debt requires paying more than your borrowed, students are setting themselves up for higher paying jobs in the long term. It’s debt that invests in the future. Some purchases are so large they can’t be saved up for, such as a fleet of aircraft, but the returns once in use will be able to pay off the business loan.

What Do I Need To Get Approved For A Small Business Loan?

If you’ve determined a loan is the best fit for your cash flow, you’ll need to have your paperwork and finances in order. While perfect credit and decades in business aren’t mandatory, it is better. Lenders require:

• Strong credit (700+)
• Strong revenue flow
• Minimum 1 year in business
• Agreement on what the money is used for
• Majority or a large percentage of ownership
• Possibly collateral

After looking at the numbers on your balance sheet and bank accounts, lenders often look at a variety of other factors to determine if they’ll offer you a loan. These include:

• The type of loan you’re applying for
• What your financial projections are
• How do you plan to use your loan
• What industry you’re in
• What your monthly revenue is
• If you have collateral to offer

Every lender has its own requirements but these are generally the standard. Check with your lender to see exactly what they require or if there is a lender who doesn’t require something you don’t have.

Where Can I Get Business Loans?

The Small Business Administration is where most business owners are directed in their loan search. Other banks and credit unions also offer loan options and may offer discounts if you have a personal account with them already. But traditional banks are no longer the only option. Traditional lenders reject 80 percent of small business owners, which has led to an additional finance sector of alternative funding to help underserved merchants. Below is a comparison of popular small business loans and alternatives.

Small Business Administration

The SBA is a government affiliated organization that works with lenders to provide loans to small businesses. The agency doesn’t lend money directly to small business owners as a bank does. Instead, it does a lending matchmaking service by partnering business owners looking for loans with the correct guidelines for loans made by its partnering lenders, community development organizations, and micro-lending institutions. Businesses can get 500 to 5.5 million dollars in funding at varying rates and terms. Some loan programs set restrictions on how you can use the funds, so always check if you have any stipulations.

Bank Loans

This has been a declining option since the Great Recession of 2008 caused by poor bank lending to come under scrutiny and lose the trust of many businesses and individuals. Most banks and credit unions offer small business loans, especially the major names. Research the programs they offer and see which bank loan best fits what you need and what you qualify for.

Alternative Funding

Alternative funding is a broad term that refers to a variety of programs in the online lending space. The draw of alternative funding is that online applications and digital money transfers allow for cash to be provided on demand. Online lending also has less strict requirements, allowing businesses with poor credit to qualify for funding they couldn’t otherwise get at a bank.

Credit Splits

This type of business financing is ideal for businesses that have primarily credit card transactions. Payback rates are a percentage of credit sales, rather than a set amount every week. Merchants with fluctuating cash flow enjoy this funding because it adapts to their profits.

Business Line Of Credit

Some business owners know that they will need additional working capital for an extended period of time. With a business line of credit, there is a more relaxed term, possibly indefinite as long as balances are paid. Business owners only use what they need and only pay interest on what they spend as long as they don’t reach their credit limit. The revolving line of credit provides continual cash flow.

Grants

This form of financing is an amount of money given to a business with no need to be paid back. These free funds are typically applied for and designated for a specified project.

Crowdfunding

One of the more popular options for startups, crowdfunding raises money from groups of other people with money to spare who want to see a project come to life. Donations are often rewarded with free early editions of the product or other incentives to encourage donations.

Angel Investors, Seed Funding & Venture Capital

The tech startup world has really taken off with help from venture capitalists and angel investors. The downside to this working capital is that equity is given up in exchange for funding. Many business owners do not want to part with too much or any ownership of their company.

Business Credit Card

Having a business credit card is excellent for building credit. Smaller businesses can use this cash flow source for small purchases. An example would be an online retailer on Etsy that buys shipping materials in bulk before the sale happens to save money in the long term. While useful and popular, credit cards can have limits too low for what expansion on a major scale requires.

If you still have questions, that’s ok! Call New York Tribeca Group and speak with a specialist to learn more about small business loans and the options your business has when it comes to finding funding for your growth goals and daily expense needs.