How to Find Local Small Business Loans from Your Community Bank

funderscorner | Funders Corner

If you are managing a small business or have kickstarted the process of venturing into one, you are sure to know about the small business loans. The first loan choice for many businesses is a traditional bank as it offers low interest rate, good payment terms and overall you will have minimal hassle provided you qualify for the loan. This is where the trouble starts as there are stipulations that are very difficult to meet. Since community banks in general do not have plenty of funds at their disposal their loan policies are very strict. So, a local bank loan option can pose difficulties including

• Stringent requirements and guidelines
• You need to have good credit score
• Your revenue history should be strong with proof of consistent and stable cash flow

Here are a few other options you can try

  • SBA loan
  • SBA loans are devised for the benefit of businesses in a local community.
  • Hence you can expect low rates of interest and long payment terms (even for ten years) with smaller installments.
  • The requirements are easier to meet than the traditional bank loan requirements.

Applying for an SBA loan

If you opt for an SBA loan like community benefit SBA loan or other options you have to do the following:

• Select a community advantage program approved lender through the Lender Match administration website or approaching a regional (district or office) SBA funding consultant.
• The lender you choose will help you with the necessary steps for availing the loan.
• The usual documents required include bank statements, business returns, tax returns, business plan that has financial projection for two years, existing debt, business equity investments, balance sheet and personal identity like driver’s license.

However SBA loan does have some drawbacks like tedious and complicated paperwork and wading through difficult government processes for approval. The time for approval may extend from a few weeks to several months too. By being tied to this type of loan that extends over a long term you may not be able to access other small business funds later on.

So you need to consider the specific requirements of your business and decide whether the SBA loan is ideal for you. If you decide this is the loan type for you, you have to spend some time to collect all the necessary paperwork and fill in the application, be accessible for follow ups and wait for the funds.

Other alternative options

Due to the time consuming nature of borrowing from traditional banks, small businesses steer clear of the conventional system. This has paved the way for other online lending options that provide much attractive terms and processes. Here are a few of the lending options you should know:

Online term loans

You can find many alternative lenders online who have easier requirements for qualifying than the traditional banks. The loans offered by these alternative lenders are similar to the usual bank loans such as short, medium and long term types of loans. The lenders offer a huge sum as the loan advance. You can repay the borrowed money over a span of one to one and a half years. The monthly payments are fixed.

The interest rate is based on your credit score and of course your business financials. The main advantage of this type of loan is it is easy to access without the tedious processes you have in the traditional system. But the rates are on the higher side. However if you are in dire need of funds and cannot afford to wait for the funds, this option is a good trade off. Further, you need to just apply for credit card and have money in just a few business days.

Business line of credit

A business line of credit is another option to consider when the term loan does not meet the needs of your business. This is particularly true, if you do not want a lump sum amount all at once. This option allows borrowers a huge amount of funds that they can borrow as and when needed.

This loan type is similar to the loan you avail with your business credit card. You lender authorizes a fixed sum or maximum credit you can borrow to meet the expenses when they arise. The interest paid is only for the cash you use at a particular span of time. When you repay the borrowed money, you can use the funds allocated again whenever you need it.

This type of loan is ideal for meeting your business goals provided you take care of the payments regularly and do not go over credit limit, which will take care of curbing the rise in the interest rate.

This is also the loan of choice when you want funds quickly and without any stringent or time consuming requirements for eligibility.
The main drawback of this loan is its high interest rate. However you have to remember that the interest you pay is only for what you use, which is comparatively less when you consider the total amount you are allotted.

O% APR card loans for business

While loans on credit cards are not much preferred or the first option, business owners in need of a small amount of funds can find an appropriate credit card that is suitable for their needs. You will be surprised to know that some cards give you loans at 0% APR for as long as 12 to 15 months. You can use the money during this period without any interest.

As you can see, the conventional bank loan is not the only option present for your small business. You can forget about the time consuming and elaborate paperwork and the eternal wait for the funds that you need yesterday with the alternative business loans.

And since these alternative lenders have to put up with a certain amount of risk in lending money, the higher interest rate is justifiable. In the end, the right loan option is based on how much funds your business needs, how soon you need the funds and your financial position.