Cliff notes version: If you’re good on time, go to your local bank first. They will often give you the best interest rate. Try one of the alternative lenders listed in this article for a wider range of options that might fit your particular business better, and for approvals within minutes.
Small business lending is changing
Small businesses are now able to get loans faster than ever. Gone are the days when you dreaded going to the bank for a business loan, only to be told your loan has been denied. Then when you were lucky enough to be approved, it took months to receive the money.
Since the financial crisis, a large number of small business lenders have stepped into the fill the gap left open by slower, stodgy banks that are unable or do not want to change. There are many reasons banks stick to their old tactics. One is the highly regulated environment they operate in and the other is the fact the many small business loans are not large enough to produce a viable profit under a traditional loan model.
However, in recent years, there have been improvements for small business lending on all fronts. The Biz2Credit Small Business Lending Index, as reported by Forbes, showed that small banks, specifically community banks, have approved 49 percent of requests this year. Not since October 2014 has the percentage crossed over 50. Nonbank or alternative lenders still lead the pack with 56.7 percent of loan requests.
The “Community Banking in the 21st Century” report, released by the Federal Reserve and the Conference of State Bank Supervisors in October 2017, showed a slight dip in lending from community banks but mostly due to increased competition for small business loans.
“These numbers suggest that community banks have lost some ground to bigger banks in small business lending over the past three years,” the report said.
“Close relationships between community banks and small businesses often present opportunities and incentives for collaboration in other areas,” the Fed wrote. “The above-mentioned findings suggest that the high-touch service provided by community bankers is often applied holistically rather than to specific product areas only.”
While there are more lending options, one thing that has remained the same is that the longer you’ve been in business, the better your chances of getting approved for a loan.
“It’s really not the size, but the age of the business,” Drew Tonsmeire, the area director at the UGA Small Business Development Center at Kennesaw State University, told the Atlanta Journal-Constitution. He continued, “The lending environment is much better than it was 10 years ago.”
Approved In Minutes
Many nonbank lenders can approve a business loan in minutes. Using data entered into the loan application and pulling the rest automatically from various sources, these lenders then analyze all of the data they are able to gather and make a final assessment. The outcome is an extremely fast decision.
While it’s great to get a speedy decision, one downside of nontraditional loans is a higher interest rate. But don’t be quick to write off these lenders because they cost more. Their rates are still fairly competitive and for some small businesses, it may be their only lending option.
Where To Get Your Next Small Business Loan?
One of the first places to try when applying for a small business loan is your local small or community bank. They’re likely to provide the best interest rate. Just watch out for origination fees, which are fees charged for processing the loan. Also, small banks can be a little slower in providing funds so be sure the timeline works for you.
Alternative lenders are the next big financing option. There are a large number of lenders to choose from. To get started, Fundera provides a way to search various lenders. They’ll match you up to those that best fit your company and financing options.
If you’re not happy with the results from Fundera, try their competitor — Lendio.
The following are two popular nonbank lenders that you can apply to directly:
ondeck — Provides both term loans and lines of credit:
• Term loan: Up to $500,000, rates as low as 9.99% AIR
• Line of credit: Up to $100,000, rates as low as 13.99% APR
Kabbage — Similar to ondeck, Kabbage offers lines of credit up to $250k, will qualify you in 10 minutes and allows choosing between 6 or 12 month terms.
If you haven’t applied for a small business loan before and not sure which one of the above lenders to go with, applying to both will allow you to compare against real numbers. You’ll then be able to make a choice on which offers the best value.
Evaluation Is The Key To The Best Decision
No longer do small businesses have to be backed into a corner with little to no options when it comes to business financing. From traditional large banks, to community banks, to alternative lenders, there’s a small business lender for nearly everyone. Taking the time to evaluate lenders of all kinds will help lead to the best cost loan for your business.
