A First Timers Guide to Small Business Loans

Millennials and Baby Boomers alike are hedging their bets on what the economy is going to do and how best to secure their future. The old standby of getting a job for 40-hours a week for 40 years is no longer appealing, safe or guaranteed. Many have experienced the changes in the employee/employer landscape and even been the finding a business loan lender in Central NYvictim of redundancy.
 
Entrepreneurs are plentiful now and although have always existed, the urgency is higher as uncertainty fills the air. The future is not guaranteed for anyone. Start-up businesses are popping up right and left, so you would think there is sufficient money available to fund projects. True and not true. Money in the form of loans and grants are, indeed, available but come with stringent rules and requirements. Small business loans in the Finger Lakes region are available but you need to know where to start.
 
Where to Start in Financing your Business Venture
 
Take a good hard look at your idea, the desire and need for the service or product, the industry trends, and your potential client base. You will need to deeply and diligently research many aspects of your proposed business before even attempting to woo a lender with your request for a loan.
 
There are three main types of business loans available.
  • Small Business Administration (SBA)
  • Conventional Bank Loans
  • Alternative Lenders
 
Which one is best for you and your business will rely on several factors. Let's look at each option:
 
Small Business Administration offers several useful loan programs intended to meet the funding needs of various business types.
The government isn't directly lending small businesses money. Instead, the SBA sets guidelines for loans made by its partners, which include banks, community Central NY small business loansdevelopment organizations and microlending institutions.
These loans facilitated by the SBA are guaranteed and backed by the government, which helps in reducing the risk to lenders.
Businesses have a variety of SBA loan types to choose from, each of which comes with its own rules and stipulations on how the money can be used and when it must be repaid.
Pros and cons: The government guaranty, which typically covers between 75 and 90 percent of the loan, eliminates much of the risk for the lender. In addition, the terms of an SBA loan also tend be more favorable to borrowers. The downsides are that additional paperwork needs to be filed, extra fees need to be paid, and it takes longer to get an approval.
This can be an excellent option for new start-ups from entrepreneurs without a huge or existing history in the business marketplace.
 
Conventional Bank Loans
Although small business loans in Tompkins County from your local bank are also the source of the SBA guaranteed loans (which are often the loan type a new business will approve for due to the guarantee of repayment), your local lender is also the formulators of conventional loans.
The biggest difference here is that with a conventional loan, the government is not guaranteeing or backing the loan, thus putting the lender is a more precarious position.  Often this risk outweighs the bank's comfort level in loaning the money to a new start-up.
Bank loans still require particular business plans, credit history, ability to repay and track record, the rules and stipulations as to how the money will be used is less daunting.

Pros and cons: While conventional loans can be approved quicker than SBA loans, and often carry a lower interest rate and less fees, the repayment term can be significantly shorter.  The difficulty in obtaining a bank loan for a new business is difficult to say the least.  New would-be business owners without a strong track record and credit history may find this option to be a tough sell.
 
Alternative Lenders
In recent years, the idea of alternative lenders has blossomed and there are some big players in the field. Small businesses are quite interested in these new lenders because of their lighter restrictions, ability to deal with less-than-perfect credit histories, and openness to start ups.
Speed of application, approval and cash-in-hand is a huge bonus to entrepreneurs who want to get going quickly and with the least amount of hassle.
There are direct alternative lenders, which lend money directly to small businesses, and lending marketplaces, which provide small businesses with multiple loan options from different direct lenders.
 
Pros and cons: There are excellent positives when considering an alternative lender which can include those items listed above (easy application process, quick approval and quick funding).  Your business and/or personal financial history doesn't need to be above excellent, and there are few restrictions on the use of the money. There is always a downside for something that sounds so good. And in this case, it is the matter of interest rates,which will be considerably higher than SBA or conventional.  That, of course, makes sense when the lenders in this arena are taking a much higher risk on loaning the money to you.
 
Final Thoughts
No matter which way you decide to go to finance your business idea, be sure to evaluate the options and be prepared with all the necessary documentation to make sure you can clearly and concisely get your business idea across to the lender in a favorable light.
Take your time and do your research. In these tumultuous times, building your own safety net with a business can be the answer for you and your family.
Published July 27, 2017 by Carol Chernikoff in Finance


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