What to do When You Can’t Get a Business Loan

Getting a loan for a small business has never been easy. But these days getting a small business loan from a bank has become almost impossible.  This does not mean that banks won’t make loans to small businesses, but they are becoming increasingly rare.  A recent Harvard Business School report noted the percent of loans to small businesses declined from 50 percent in 1995 to roughly 30 percent in 2012.  While this has had a tremendous impact on small business finance, but just because you can’t get a small business loan doesn’t mean you have any options.

Alternative Finance

Noticing that most small businesses had a difficult time getting a loan, alternative finance has helped to fill the void.  In fact, the same Harvard report noted that trends such as alternative finance and technology are helping more and more small businesses get the funds they need to grow.

The truth is that these providers better understand the needs of small businesses.  In some cases, they can even write loans to businesses who have only been in business for as little as two or three months.  These loans include merchant cash advances, inventory loans, and cash flow loans and the process to get approved is usually measured in days, not weeks.  This is a big change from traditional bank loans which can take three weeks or more to get approval.

The one thing to remember with alternative finance options is that you should use short-term loans to fill short-term needs.  This could include working capital for a big order, or a loan just to cover a temporary shortfall in your cash flow.  Alternatively, longer-term needs should be financed by long-term loans.  This could include loans to purchase a new piece of equipment which might take months or even years to repay.

Small Business Administration

Based on a report issued by the Small Business Finance Institute in 2015, the market for Small Business Administration Loans is growing.  The report noted that SBA 7(a) loans were ticking upward in 2015 and while the full-year results have not been published, many analysts believe the trend looks set to continue in 2016 as well.

However, there are some challenges with SBA loans.  First, the number of lenders is declining.  Part of the reason is that some lenders can better process SBA loans compared to others.  While this is not a bad thing, it does mean that competition amongst SBA loan providers is declining and this means that small businesses have less choice.

Another downside with SBA loans is that the application process is extremely paper intensive.  For most SBA loans, you will need to present a full business plan and this can take a significant challenge for a small business owner who is fighting to make ends meet.

So why are SBA loans an option?  Despite the lengthy application process and the lack of choice, these loans are for small businesses and it make sense to consider them, especially for longer-term financing needs or loans of $150,000 or more.

Grants

While grants can be hard to find and are usually quite specific, they can be a useful option when you can’t get a loan.  After all, grants are essentially free money and that is something you don’t want to overlook.

Two good places to search for grants are BusinessUSA and Grants.gov.  Both sites are run by the government and they list hundreds of potential grants which are available for your business.   You can also look to your state or local government for grants or other forms of investor tax credits.  These can even include state programs which provide tax credits to investors in small or early-stage businesses.

Another thing to look at when you are considering grants are programs for technology development.  This can be especially useful if your company is focused on advanced manufacturing or is a tech company of some sort.  These programs can include grants for research on certain topics or opportunities to partner with universities to develop new technologies.

While banks are no longer the primary source for small business finance, other options have emerged.  Remember to check out alternative finance companies, SBA loans, and even grants to see if you can get the funds you need to grow your business.