Entrepreneurs and small business owners trying to obtain a conventional loan from a bank can find the process arduous, if not nearly impossible. It’s no secret: banks have become more restricting when it comes to lending after enduring huge losses from the economic downturn of recent years.
Consequently, obtaining a conventional loan is not a viable option for many small business owners and entrepreneurs. Creative lending alternatives are growing in popularity, and lending experts believe these options are here to stay long-term.
Raj Tumber, a business mentor with SCORE Las Vegas, said obtaining a loan in today’s economy requires intense work; bankers want more assurance that the borrowers will have the ability to repay the loan.
“Lenders want an excellent credit history, investment by the owner, collateral, a business plan and experience,” he said, citing his experience working with small business owners over the past four years as a SCORE business mentor. SCORE is a national nonprofit association providing free mentoring to small business owners and entrepreneurs. The organization boasts an army of 13,000 volunteer business mentors, with 348 chapters nationwide.
Tumber said he has seen an upswing in small business owners turning to more creative loan options, such as crowdfunding, micro-loans, and peer-to-peer lending.
TOP SOURCES FOR FINANCING IN 2013
Accion is one of the nation’s largest lenders, specializing in small loans ranging from $500 to $50,000. Accion offers more leniency than conventional lenders for obtaining a small business loan.
The SBA’s Microloan program falls next in line after Accion regarding lenient lending qualifications, with loan ranges from $5,000 to $50,000. This is a short-term loan program, with a maximum term of six years.
iBank is a national network of lending resources and transacts a large numbers of small business loans on a daily basis, including crowdfunding. Borrowers post their business funding needs for lenders and investors to review.
Prosper is a leading peer-to-peer lending marketplace that connects people who want to invest with people who want to borrow. Prosper borrowers list their loan requests between $2,000 and $25,000 and individual lenders can invest as little as $25 in each loan they select.
Kickstarter is an online platform for raising capital to start a business, project or idea. The site has become one of the most successful outlets for crowdfunding worldwide. Kickstarter has been especially popular for inventors with high-tech, innovative and creative products.
Tumber highlighted other non-conventional resources for loans include online-based lenders, which offer secured loans ranging from $150,000 to $200,000. Some individual states also offer unique programs and resources for small businesses seeking funding.
“Usually these resources are not very well advertised and most small business owners or potential entrepreneurs are not aware about them. I recommend people check with their local SCORE office to see if they know about any state-based, small business lending programs or resources,” he added.
One of the most frequently asked questions Tumber receives regarding funding is the availability of government grants for starting a small business, grants that do not exist.The idea that the government is handing out grants for small business owners is “one of the biggest myths out there,” he lamented.
With so many options for alternative funding, the onus is ultimately on individual business owners to choose the one best suited for their current economic situation.