Small Businesses Struggle to Obtain Loans

Small business loans rarely make sense. Banks will give a loan to a new business that has been in business for one day, yet they turn down a business with good personal credit and money in the bank. Another one had to wait over a year to get the loan, yet the bank provided a loan for under $50,000 without looking at the company's financial records. Stories like these are everywhere.

A bank manager revealed that a small business should have landed the loan easily, but the bank turn down the loan request. Business owners may try working with a community or regional bank, which tend to have less paperwork and red tape than a national bank.

SBA Financial Programs

Nonetheless, business owners have other options besides banks. The Small Business Administration (SBA) has a financial assistance section on its website covering grants, bonds, capital, loans and more. The SBA helps businesses with their applications for financial programs. Moreover, SBA loans help businesses improve credit scores, something that traditional loans don't always do.

Note that the SBA doesn't give loans to businesses. Its focus is to set guidelines for SBA partners to follow while guaranteeing lenders will see their loans paid back. This takes some of the risk out for the lenders.

The SBA's guaranteed loan programs include:

• 7(a) Loan Program: "This is SBA’s primary and most flexible loan program, with financing guaranteed for a variety of general business purposes. It is designed for start-up and existing small businesses, and is delivered through commercial lending institutions." Express Programs, Export Loan Programs, Rural Lender Advantage Program and Special Purpose Loan Program are some types of available 7(a) loans.
• CDC/504 Program: long-term, fixed-rate loan to buy fixed assets to expand or improve such as real estate or equipment.
• Microloan Program: Smart, short-term loans up to $35,000 for working capital or purchases.
• Disaster Assistance Loan Program: Low interest loans for repair or replacement of assets destroyed or damaged in a declared disaster.

You can find financing options with other resources besides banks such as:

• Credit cards -- smaller amounts with high interest. Interest adds up when you don't pay off the credit card every month.
• Government programs similar to SBA -- longer payback, but complex process that sometimes ends up falling through due to government changes.
• Friends and family -- probably the best option for zero or low interest, but the loan may affect the relationship.
• Home mortgage -- cheap and long term. However, it could put your home at risk upon a missed payment.
• Finance companies -- can offer more flexible solutions than banks. You may need to spend time finding the right financial plan for your company. Some lenders are expensive and some expect collateral.
• Venture capital -- can lead to large funds, but they're hard to get and sometimes venture capitalists expect part ownership or shares.

Prepare for Business and Financing Questions

Before you approach any organization with a loan request, you'll need to be prepared with answers to basic questions as well as have all relevant information and paperwork available. These often include:

• Business financial statements.
• Business plan and projections.
• Business tax returns.

Some lenders may ask for more information. To speed up the process, collect everything you have about your company. These are good questions to know the answers to before meeting with lenders:

• How much money do you need?
• What is the money for?
• How you will repay the loan?
• What will you do if you can't get the loan?

We also provide questions to ask a lender. Do your research and ask lots of questions. If they don't answer your questions or give you a roundabout response, go elsewhere.

What other questions do you have about loans and funding?