Does the thought of applying for a traditional small business loan make you break out in a cold sweat? If you’re like a lot of small business owners, a traditional loan simply isn’t a possibility.
- Your business might not generate the kind of cash flow traditional lenders want to see before offering a loan.
- You may have had business or personal credit challenges in the past or other financial hardships that could make traditional lenders hesitant to work with you.
- Your business might be brand new and lack the kind of solid financial history many lenders want to see before offering assistance.
But just because you’re not able to boast a clear upward trajectory of profitability and a perfect personal or business credit score doesn’t mean you can’t secure financing. In fact, there are many lenders that specialize in providing small business loans to businesses just like yours.
So before you give up on the idea of obtaining a loan to help your business grow, check out these five viable alternatives to traditional loans and traditional lending. Chances are good that one of them is the perfect fit for a small business like yours.
In some U.S. states, more than 45% of small businesses fail within the first few years of opening their doors. Surprisingly, it’s not for lack of a good business model or the ability to connect with customers. Instead, failure can occur simply because these businesses are unable to get the working capital they need to help keep their business growing.
Microlenders are changing all that. Many bigger banks are forced to deny small business loans because the loan amounts offered by these institutions are simply too high. Small businesses don’t qualify, and big lenders don’t have an alternative loan amount or small-scale terms to fit their needs.
This is where microlenders come in. Microlenders provide smaller loans in amounts like $5,000, $10,000 or $15,000. This “seed money” is just what many small businesses need to get off the ground or keep things running. The best part is that more and more microlenders operate partially or exclusively online, allowing business owners from all over the country and the world direct access to the capital they need.
Opportunity Fund, for instance, is a microlender that connects California small businesses with microlenders and microloans. Many of their loans are given to women and minority-owned businesses whose average household income is less than $40,000.
With microloans and microlenders, you don’t have to be a $1 million business just to get a business loan. Check out the SBA website for information on obtaining a microloan through the Small Business Administration.
2. Online Lenders
Gone are the days of getting all dressed up to head down to the bank and apply for a business loan. Today, more and more alternative lenders are making it easy to obtain capital from the comfort of your home, office, or nearest coffee shop.
Online lenders like Credibility Capital and Kabbage have made the loan application process simpler and faster than ever before. Through their websites, you can apply in minutes, get approved in minutes, and get money in your business bank account in a matter of days.
But what’s even more impressive about these types of online lenders is the criteria they look at when making their lending decisions. Unlike traditional lenders, which tend to place heavy importance on your business credit score and revenue, alternative online lenders can take many other factors into account. For instance, Kabbage allows you to link your QuickBooks, PayPal, EBay, and Amazon accounts during the application process so they can get a 30,000-foot view of your business operations, outstanding invoices, and monies owed to you.
With this kind of three-dimensional application process, far more small business owners are able to qualify for a loan. When coupled with start-up friendly application criteria, like one year in business and $50,000 in annual revenue, even more small and micro businesses can get approved.
Where the typical microloan is around $13,000, many online lenders offer loans or lines of credit up to $100,000 for qualifying small businesses.
3. Minority-owned Business Loans and Grants
If you are a certified Minority Business Enterprise (MBE) and/or Women Business Enterprise (WBE), you may qualify for alternative funding opportunities in the form of loans, grants, or scholarships from private lenders or the Federal government.
The first step to obtaining capital based on MBE or WBE status is to make sure your business is properly certified through the National Minority Supplier Development Council. Certification qualifies you for a myriad of alternative funding opportunities, both through the SBA and private lenders. You may also qualify for special incentives through state and local government organizations.
Once certified, the SBA may be your best bet for a small business loan. Their average loan is significantly higher than traditional business loans offered by banks; about $350,000 vs. $130,000. The SBA may also be able to connect you with alternative lenders who are a perfect fit for the unique financing needs of your MBE or WBE.
When you think about crowdfunding, your thoughts may quickly turn to Facebook posts or tweets from friends begging you to donate to their band’s “help us finish our album” Kickstarter campaign.
But do you know that sites like Kickstarter, Indiegogo, Peerbackers, and Rockethub consistently generate significant capital for small businesses, startups, and entrepreneurs?
Crowdfunding sites allow you to set a financial goal for a specific project or task, and raise money for that project by accepting small donations from individuals and investors. Crowdfunding also allows you to raise capital for your business regardless of your current financial picture. Whether you’ve already obtained seed money or are starting from scratch, whether you have pitch-perfect financials or bad credit, you can connect with your target market and obtain funding based on your passion, innovation, and ideas.
Crowdfunding is not only a great way to help raise capital; it can be a fantastic way to vet your business ideas and connect with your target market.
5. Local Lenders
Even more great alternative funding sources can be found by connecting with local credit unions, local organizations, and venture capitalists in your local community.
If you run a local business, you are positively impacting your community by creating jobs and supporting the local economy. This can give you leverage for finding small business capital because you can demonstrate how that capital will be used to benefit your neighborhood and city.
Credit unions are a great option because they offer a more personalized approach to the application process. Unlike big banks, they are more likely to look at a variety of factors when making lending decisions.
You can also connect with venture capitalists who are based in your city, and use your mutual geography as a starting point for conversation. Ask them to coffee or lunch at your favorite local spot to get the conversation rolling.
To find local lenders in your area, visit the VEDC website (note: the VEDC recently partnered with JP Morgan Chase to create the National African American Small Business Loan Fund. If your business is based in Chicago, New York, or Los Angeles, find out if you qualify).
Securing financing for your small business may seem like a monumental task, but it doesn’t have to be. By approaching the right lenders and working with organizations that cater to businesses like yours, you can be able to obtain the financing you need to help your business thrive.
Photo Credit: stefiakti, Twenty20