Small Business Capital Loans – Banks aren’t your only options

I often work with individuals that have difficulties obtaining small business capital loans. If you’re business is new (less than 2 years, sometimes 3), your credit isn’t perfect (over 650), or you don’t have the 25% equity requirement (sometimes more) that a bank expects, you likely don’t meet bank-lending criteria. Luckily for you, banks aren’t your only options. Today, I’ll cover a few funding opportunities to consider.

Local Government

I’m quite fond of tapping into local government programs. What I’ve learned from working with the government is they don’t run like a profitable business. With a profitable business, the idea is to be efficient with money. If you have leftover because you did so well with managing a project, then awesome! This isn’t the case with government programs. The government often operates on the use-it-or-lose-it mentality. That is, if they don’t “spend down” the money allocated, there’s the potential to not have that money reallocated again next disbursement. I’ve yet to encounter a government program that wants to decrease their budget.

With that being said, because their programs are in the use-it-or-lose-it mode, whatever they allocate for small business capital loans, they want to get out to qualified businesses. Depending on the agency, their fiscal year may end around October or June. You might find them quite eager to disburse whatever funds are available. On the flip side, some funds go by extremely quickly. So tapping into them near the beginning of a fiscal year can also be beneficial, as you may lose out to those a bit quicker.

NonProfit and For-Profit Businesses

Nonprofit businesses act a lot like the government when it comes to spending. They don’t operate on a use-it-or-lose-it system. However, the goal of the business itself isn’t to get rich, though the can. Rather their mission tends to be toward the benefit of the public. If they don’t spend down their funds, oh well… Still, some nonprofits have a mission to help small businesses. If you do your research, you may find a nonprofit that has opportunities for your business. Interestingly enough, some of these nonprofits may also be funded by the government. When they are, they sometimes have that use-it-or-lose-it mentality, when it comes to the government funds.

Just as nonprofits can have a mission to help small businesses, some For-Profit Business may also. Often times, you find the larger employers or corporations in the areas with goals to give back to the community in a big way. However, I’ve also come across smaller businesses that band together to make a big impact. With smaller companies, it’s about keeping your eyes and ears open for special events or opportunities.

Loan Guarantees

Though technically, not a loan, I do want to mention obtaining a loan guarantee as an option. A loan guarantee is a situation where another entity, it’s usually the government (city, state, county, federal, etc.), but a non profit organization or even a for profit business can guarantee a portion of your loan. This means that if you default on your loan, the guarantor will repay a percentage of the loan. No one wants you to guarantee. However, this provides some protection to lenders. Small business capital loans are already risky. It’s even more risky when it comes to startup businesses. If you’re able to reduce the risk with a guarantee, your loan can suddenly look a lot more attractive to a lender.

One thing to keep in mind with loan guarantees is that the lender still does the due diligent and the final determination if they’ll lend you the funds regardless of if another organization guarantees a portion of the loan.

Final Thoughts on Small Business Capital Loans

Sometimes getting at alternative small business capital loans is simply being diligent in research and bold enough to ask. When I say as, I don’t mean ask for the money. Rather, ask for what they’re looking for in a borrower and how you can improve your chances of obtaining the funds. Every organization has an ideal candidate. It’s a lot easier to become that candidate if you know what the funder is seeking.