Small Business

Knowing your options: where can you get business funding?

The stars have aligned for business owners looking to secure a loan. Interest rates are attractive and are expected to stay that way for the remainder of 2019. Meanwhile, the economy is expanding at a reasonable pace and the credit quality of business owners like you has never been better. Plus, the rise of tech innovation such as mobile app payments and online lenders has given business owners greater flexibility for securing financing than was ever possible with banks.

If you’re like many entrepreneurs, you’re faced with the question of where to get funding for a business. The conundrum of cash flow limitations can be crippling in an economic environment that is otherwise encouraging growth and expansion. Not knowing where to get money for your business could also interfere with the day-to-day operations of your company, whether it’s delivering a payment to a supplier on time or making payroll.

Fortunately, you’ve never had more options when it comes to accessing capital. That’s because the importance of business owners can’t be denied, even among the most unlikely lenders (e.g., banks). As a result, the best places to get a business loan these days are designed for the owners of small- to medium-sized businesses.  

Payment processors not only handle payments, but can also get you funding for your business

There is a hot new trend in business funding. Everyone is getting into business financing these days, including payment companies. If you’re wondering, “where can I find funding for my business?” look no further than your payment company. They have a unique window into your sales figures, one that gives them the ability to cut to the chase when determining your creditworthiness.

If your business processes payments with third-party providers like Stripe, Square or PayPal – or if you use Amazon, for instance – chances are you’ve been offered one of these loans.

These companies use sophisticated algorithms to determine the amount you qualify for based on your history of sales. If you’re still wondering where to get funding for your business with a payment processing company, often it’s just a matter of clicking an offer that appears in your online account. Just keep in mind that despite their aspirations, payment processors aren’t necessarily the best place to get a business loan. Essentially it comes down to the fact that they’re not banks and therefore may charge higher-than-average interest rates to reflect the risk that the lenders inherit.

Alternative lenders come in handy to get money for a business

If payment processors don’t seem like the best choice, you’re still left wondering, “Where can I find funding for my business?” Turns out you don’t have to go any further than your mobile device for a loan.

Call them alternative lenders, online lenders or fintechs, these companies have filled a gap left by financial institutions and have forever altered the landscape of where to get funding for a business. Whether it’s a short- or long-term loan or a line of credit, these providers are a one-stop shop for all of your financing needs.

Online lenders are known as among the best places to get a business loan for their speedy approvals. This is due to a nimble, asset-light formula that relies on sophisticated algorithms collecting data beyond just a credit score. Similar to payment processors, online lenders might tap into your sales transactions and cash flow to assess risk. You can have a decision in less than an hour, and technology is making it increasingly possible to receive the funds in your account on the very same day that you are approved.

While the process is accelerated, be prepared with information such as your social security number and business tax ID. Online lenders might also request access to your business bank account and, depending on the size of the loan, could request financial statements.

Fintechs have lent out some $10 billion to nearly 200,000 businesses in the two years leading up to 2017 in the U.S. alone. There’s no shortage of options to choose from as you determine where to get money for your business.

Banks are coming around to small business loans

Big banks have long been the stomping ground of the largest corporations with the ability to access the debt capital markets, and therefore have not been considered the best place to get a business loan if you’re an SMB. The paradigm has begun to shift, albeit slowly, as financial institutions have begun to roll out the welcome mat for small business loans, too.  

Bank approvals for business loans soared to more than 27% in March, the highest level ever for loans issued by banks with more than $10 billion in assets. The trend is a result of strength on the balance sheet of businesses, particularly in 2018, that has piqued the interest of banks.

Keep in mind that while big banks are warming up to small business loans, it’s not as simple as filling out an online application and signing on the dotted line. In fact, they are still saying no more often than yes, as evidenced by nearly 75% of applications being turned down.

This is where as an owner, you can increase your chances for getting funding for a business by dotting the I’s and crossing the T’s that banks have grown accustomed to. When in doubt, prepare too much information rather than too little.

Stay one step ahead by providing both your personal and business income tax returns. The same goes for bank statements: include personal and business. Of course, no matter where you find funding for your business, they’ll want to see financial documents including a balance sheet and P&L statement – not to mention the amount of equity you hold in the business. Top it off with a polished business plan that features your outlook for future performance and you’ve just increased your shot at getting a small business loan.

Find funding for your business with the SBA

You could always look to Uncle Sam for where to get funding for a business. The SBA boasts a lending program for business owners. You may want to wait until the dust settles on an issue that will impact the cost of your loan. The SBA has submitted a budget proposal for 2020 that includes higher fees tied to its 7(a) Loan Guaranty Program that would affect lenders and business owners alike. Thankfully, fintechs are bridging the gap.

Some hybrid alternative lenders also support SBA loans. While fewer than two dozen lenders have this capability, companies such as SmartBiz supports SBA loans in a range of $30K to $5 million with repayment terms of between 10-25 years. That’s just one example, and it’s a way to access SBA loans as a solution of where to get money for your business while the government sorts things out. Other fintechs are stepping up with bridge financing of up to $250K to tide over business owners whose SBA funding is stuck in the government’s red tape.

With all of these lenders clamoring for your business, where you get funding for your small business loan will come down to the amount you need to borrow, your willingness to access technology, and the ease in which you’d like to access financing.

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