If your business has been turned down for bank financing, you are not alone. Fewer than one in five small business loan applications get approved by the big banks. Find out why, and consider these four funding alternatives when the bank says, “No!”
Most small businesses lack one or more of the qualifications most banks require of corporate borrowers. They lack collateral, they have a low credit score, they haven’t been in business long enough or they don’t want to borrow an amount large enough for the bank to consider. It’s ironic that some of the organizations that might benefit most from obtaining a business loan are the ones that can’t meet bank loan requirements.
A bank’s “No!” isn’t the end of the road; today’s entrepreneurs can consider many different alternatives to bank funding:
1. Crowdlending and Peer-to- Peer Lending Programs
Crowdlending and peer-to- peer lending programs (sometimes called collective financing) give business owners an opportunity to pitch their brand and business ideas to individuals or groups who decide which projects receive funding. Depending on the program, you might have to submit just as much paperwork as you would for a bank loan but unlike bank loans, the intangibles which inspire you could be just as inspirational to loan decision-makers.
Microloan programs help to fill the gap where bank financing is not available to entrepreneurs in smaller amounts. Depending on which microloan program you decide to apply for, the application process might be as long (or even longer) than bank loans, especially if you apply for an SBA-guaranteed microloan. In addition, your microloan might come with restrictions on use and oversight requirements.
As your business grows, it will need more working capital but it might need more human capital, too. You might have started your business as a solopreneur; however, when your business needs funding in order to grow to the next level, it might be the perfect time to consider bringing on investors as partners (or silent partners). You can draw on their wisdom and enthusiasm as well as the monetary resources they bring to the table.
4. Online Loans
Online loans might be the perfect alternative when banks aren’t an option. They are perfectly packaged for today’s entrepreneur. It’s easy to apply and since application is made online, little or no paperwork. There are fewer hoops to jump through in terms of borrower qualifications, so approval rates are much higher than that of bank loans. Approvals are made quickly and are sometimes even instantaneous – as is funding in some cases. Once approved, a business owner can use the funds at their discretion and do
what they think is best for their business.