Forward: Many thanks to Accion for contributing this post and sharing their insight and expertise around this topic. As the largest nonprofit micro- and small business lending network in the United States, Accion connects small business owners with the accessible financing and advice it takes to create or grow healthy businesses. – Melissa Hollis, Marketing Content Manager at indinero
While it can be tough to get a business loan, it’s important to have the proper financing in place. Otherwise, how can you operate without cash to invest in materials, space, employees, and all the other must-have items for getting a business in gear?
When it comes to getting the money to run and grow your business, there are a few different options available. Some of the best financing options for any business are loans from banks or credit unions, or microloans. Learn more about each of these three types of loans, and determine which is best for your business.
Small Business Bank Loans
A business loan from a bank is a very traditional path for financing. The key to securing this type of loan is patience and persistence: where pre-recession you may have been able to get a loan from the first bank you met with, you may now need to try multiple banks.
If you can secure a loan from a bank, it’s likely to have a lower interest rate and terms that are advantageous for a small business owner. Look for banks that are Preferred SBA Lenders; this means that the bank has been through the process of administering a Small Business Administration loan in the past.
Regional and community level banks may be more likely to give preference to a local business. This is especially true if you are borrowing a relatively small amount of money; larger, national banks may feel the risk isn’t worth it, where regional banks will be more willing to take a chance.
Credit Union Business Loans
Credit unions offer very similar products to banks, but often with a more personalized service. Granting a loan essentially amounts to a financial institution taking a gamble that your business will succeed, and you’ll be able to repay them. Given this risk, a personalized relationship can be advantageous, so if you belong to a credit union already, they’re a good bet for a loan.
Need only a small amount of financing to get your business off the ground? A microloan might be right for you. Microloans are typically for less than $50,000 and are often much easier to secure than loans from traditional financial institutions.
Microlenders help many business owners who would struggle to get a loan from the bank, such as low-income individuals, and people with a short credit history or a low credit score. However, the interest rate on a microloan is typically higher than a bank loan.
Another advantage of microloans is that lenders typically will support your business in other ways besides financing; microlenders will offer training, education, and other resources to help your business get off the ground.
Making a Loan Choice That’s Right for You
Which type of loan is right for you? As you make your decision about financing options for your small business, consider the amount of money you’ll need, the business owner’s personal credit history, and the balancing act between interest rates and ease of getting a loan. Get more information on how to get a business loan.
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*Note from the editor: As mentioned above, microloans are a great option for owners seeking initial funding to get their organization up and running. They are also a fantastic opportunity for angel investors to get involved with new ideas and bring their background and expertise to other industries of interest. Our CEO & Founder, Jessica Mah recently became an Angel Investor with Kiva, a non-profit organization that allows lenders to reach low-income entrepreneurs such as students online.
Cover Photo by Steven Depolo via flickr