Ever since the economy crashed in 2008, banks and lenders have become skeptical about lending money to businesses. However, since the past few years with the success of emerging startups, small business lending has been on the rise. Under the new government, the banking industry no longer faces too many restrictions. The rising interest rates, too, help the banks make more money. This gives a green light to the small businesses seeking a business loan. Despite the rising interest rate, borrowers can consider getting a loan as the new government has also come up with a tax cut plan that will help business owners with their business and in repaying the loan. The percentage of loan approvals are on the rise as a result of the recent trends in small business lending.
What are the different types of business loans?
While searching for a lender, a business owner will come across different types of lenders and loans.
- The most popular types of lenders are small business administration loans (SBA), conventional bank loans, and alternative lenders. The SBA loans offer several loan programs that are designed to address the financial needs of a small business. The types of loans offered by SBA loans include loan program, microloan program, real estate and equipment loans, and disaster loans.
- Borrowers may find low interest rates on conventional bank loans. Alternative lenders are often great for small businesses as the approvals are not difficult to get. Conventional banks and alternative lenders offer loans that include working capital loans, equipment loans, merchant cash advance, lines of credit, professional practice loans, and invoice factoring.
What are the different ways of getting a business loan or funding?
- Apart from the usual ways of getting a business loan from different types of lenders, business owners can go for Accion, which is a huge network of microfinancing and small business lending in the country. There are offices in every U.S. state, making it highly accessible for business owners.
- Factoring is a common method of getting funds for a business. In factoring, a business sells its bill receivables to another entity at a discounted price to raise funds for the working capital. Companies that make tangible products often go for factoring.
- Business owners can also use their credit cards for instant payments. However, it is important that credit cards are used carefully, especially when it is being used for business.
- Crowdfunding is another way to raise funds for a business. Business owners can browse through all the crowdfunding websites and select an appropriate one. Some popular crowdfunding websites include Kickstarter, SoMoLend, Indeigo, RocketHub, Peerbackers, Endurance Lending Network, Grow Venture Community, MicroVentures, Angellist, and CircleUp.
Can a business satisfy its financial needs through fundraising and crowdfunding?
- Crowdfunding has the potential to change the way startups raise money. Though the concept of crowdfunding goes back to the 1700s, the trend of using crowdfunding hit the startups’ scene in 2012.
- Crowdfunding can be a strategic way of getting other organizations or individuals to sponsor a business idea. Startups have a huge potential for raising enough funds for its seed capital through crowdfunding.
- Crowdfunding is also a great way to approach and connect with a huge network of people who may, at some point, add to the growth of the business.
- Hence, crowdfunding can take care of the early finances a business requires and help the business connect with its potential customer base.
What is the right time to approach alternative lenders?
Alternative lenders have made a place in the non-traditional ways of providing business loans to start-ups.
- For start-ups, there are multiple ways to raise funds. Startup business owners can go for alternative lenders instead of applying for business loans or getting funds from investors.
- An important factor for businesses is to know the amount they need in the form of a loan or funding and then getting it from the right source.