The 5 Best Sources for Business Loans

  •    Meredith Wood is Editor-in-Chief at Fundera, an online marketplace for small business loans.

Most small business owners will need outside funding at some point in their business to meet their goals. Perhaps it is to fuel growth, or you need a cash to cover a gap while you wait for your customers to pay. Whatever the reason, it is is important you consider all your options for financing before starting your search.

Here are the 5 best places to find a loan for your small business:

  1. Bank Loans. The cheapest source of debt financing for your business is going to be a traditional bank loan or line of credit. If you can get a loan from a bank, you should always go that route. That being said, banks are currently denying around 85% of small business loan applications, leaving few with this option. But, it never hurts to chat with your local banker. Along with high denial rates, bank loans also have lengthier applications and time to funding. If you are in a time-sensitive cash crunch, this may not be the best route.

  2. SBA Loans. SBA loans are another product where you can find single digit interest rates. A bank loan at their core, SBA loans differ in that a portion of the loan is guaranteed by the SBA, eliminating some risk for the lender, and allowing more businesses to qualify. The SBA also has many different loan programs, such as the 7(a) Loan Program, the 504(c) Loan Program, and the Microloan program. These programs allow borrowers to find a loan that best fits their needs. Here’s a quick cheat sheet on their various programs. SBA loans also tend to have lengthy applications, but there are a few organizations that make it possible to apply for an SBA loan online, which can make the application faster and more accessible than with a bank loan. However, again, if you need cash fast, you might want to consider a different option.

  3. Alternative Loans. Alternative, “non-bank” lending is on the rise, helping fill the void left by the banks. These lenders can usually be found online. There is a lot of pros with an online loan. For one, there is a diversity of products, so you can find a product that fits your unique needs. Perhaps you have a lot of AR -- you could use those invoices to collateralize a loan with invoice financing. Or perhaps you just need to overcome a small gap in cash, and don’t want debt on your books forever. You could look into a short-term loan. There is also a faster time to funding with alternative loans, thanks to technology. You can get a loan in a matter of days. But, alternative loans are higher-priced than bank loans, and in some cases, can be extremely costly. If you need to get funds into your business quickly, they are great option, but make sure you understand the price of the loan before committing.

  4. Credit Cards. Many business owners use credit cards to help finance their business. As one of the easiest forms of financing to qualify for, its a good option. How you use the credit cards is very important. As interest rates on credit cards are very high, your best using them to upfront purchases, but not for amounts you can’t settle by the end of the month. Credit cards are also a great way to build credit (both business and personal), so by making a habit of using these for business purchases, you’re building a stronger credit history which can help you qualify for lower-cost financing in the future. That is, of course, if you pay on time.

  5. Investor Funding. One of the most popular forms of "startup financing" is venture capital funding. Not only does this help get companies the capital they need to get off the ground, but often investors bring more than money to the table. They provide mentoring, introductions, and more. So, what’s the catch? First of all, you will have to give equity to these investors in exchange for the cash. This means you will lose part of your ownership. As well, finding investors can be incredibly difficult and time-consuming. If you need cash immediately, it isn’t a good fit. If you can’t afford to the time it takes to find investors, you may need to examine another route (like the 4 provided above).

Looking for business financing is never a fun experience, but if you approach the journey as educated and prepared as possible, you’ll find you’re better equipped to find the solution that best fits your unique situation, and easily get access to that capital your business needs to reach the next step.

Photo Credit: GotCredit/Creative Commons