December 27, 2015
After several years of recession, and several more years of slow recovery from that state, it seems like the American economy is finally moving forward with a little more strength in 2015. After several quarters of relatively strong growth, and a global economy that is, if not necessarily barreling forward, is at least not faltering, the Federal Reserve Bank seems likely to finally begin to raise interest rates in December.
What do stronger economic times mean for small businesses and startups in the U.S.? It may mean that businesses begin to consider whether it’s time to invest cash in a business, whether that means finally moving forward on a startup concept that’s been tickling your mind for years, or investing in your existing business to expand, rebrand, or revitalize. And to do that, you may need more cash than you necessarily have on hand.
Why Big Banks and Small Businesses Don’t Go Together
Many would-be business owners dream (or dread) that fateful moment when they sit down with a loan officer and their business plan. They might have spent years dreaming about that ceremonial handshake, but when push comes to shove, they might find that big banks don’t have much to offer small businesses.
Businesses make their money on the interest that comes in from loans. The bigger the loan, the more interest they earn. Small businesses often need very small amounts of money, and big banks often find that the cost of underwriting a small loan is more than they’d earn back in interest. It doesn’t make financial sense for them to make loans of that size. When America was populated by community banks, this was less of an issue, but national chains have taken over fewer businesses have access to small, local banks. In the past year, only 20 percent of loans to small businesses were made by big banks. Small businesses have turned to alternative lenders to get the necessary credit to continue operating their businesses.
How to See All the Options at Once
With so many choices in the digital age, how does an entrepreneur decide what lender is going to offer them the best terms? Business Lender Match is a great way to get started. The site uses a matching model, where you input some basic information about what sort of loan you need – the amount, the purpose for the money, and the history of your business – and the site then uses its algorithms to determine which lenders can help this business get a loan.
If you’re considering a business loan to finance your small business’s expansion or revitalization, make sure that you’re comparing terms, fees, and options to make sure you get the best deal you can for your business.
What Alternative Lending Sources Make Sense
What sort of alternative lending source a business pursues depends greatly on the business. In the tech-firm world, venture capital is the name of the game. Many local Small Business Association chapters and Chamber of Commerce organizations have had great success with organizing Shark Tank style pitch contents to both help entrepreneurs create better business plans and also learn to network with investors. For businesses owned by minorities and women, special grant programs may be available at different points to help them fund their businesses.
When those options aren’t the right fit, many entrepreneurs take their business plans to other funding sources, such as credit unions, small banks, and alternative lenders. Benefits of these programs are that the lenders are often used to supporting smaller businesses, so they have more simplified and streamlined application processes, and more realistic expectations for credit history and background checks. However, businesses pursuing alternative lending sources in particular should be careful; for every amazing lender with a one-step application process and amazing and forgiving terms there are many more predatory lenders that can ruin a business’s credit history without benefiting them in any way. Remember: if it seems too good to be true, odds are that it is.
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