4 Small Business Loan Products You Should Be Aware Of


Jeffrey Bumbales

It takes money to make money. That is the mantra of just about every small business owner. Since growing a business typically requires more capital than a business owner has, understanding all the small business loan options available to you is important for success. Knowledge is power when it comes to choosing the right loan product.

4 Small Business Loan Products You Should Know About

There are several different types of small business loan products out there and lenders in which to pursue them, and each comes with their own set of criteria, benefits, and drawbacks. They include:

  • Banks
  • The Small Business Administration (SBA), where they connect you to a partner financial institution for the loan
  • Credit unions
  • Alternative lenders

Bank Small Business Loan

According to about.com, not that long ago, most small business owners had established relationships with their bank where they could apply and receive approval on a loan without much difficulty. But since the credit crisis of 2008, banks have tightened their loan requirements, making qualifying more difficult, if not impossible, for some small business owners.

The Benefits:

  • If you can meet the bank’s requirements, these small business loans typically provide one of the lowest interest rates of all the funding options.
  • The loan further establishes your credit history, so the next time you need money, you may qualify for a larger amount.

The Drawbacks:

  • Banks require a lengthy application that takes at least 30 days to process.
  • You typically need an excellent credit score and credit history.
  • You must provide a detailed business plan outlining your business, tax and bank records, and collateral in case you cannot repay the loan.
  • If your business is new, or a start-up, you face bigger obstacles. According to Foxbusiness.com, many banks turn away requests for a start-up loan because they require three years of business financial data to be provided.

Small Business Administration Loans

The SBA is a government agency that offers several loan products that carry different types of costs and requirements. They cover opening a business, expanding a business or keeping a business running smoothly. They do not issue the loans themselves but connect the borrower up with their lending partners.

The Benefits:

  • SBA small business loan programs lend to small businesses unable to secure financing on their own through the typical bank application. The loan programs are provided through private-sector lenders and are guaranteed by the SBA, so financial criteria is easier to meet and you stand a better chance at loan approval than if you just approached the bank yourself.
  • If you can meet the SBA requirements, a small business loan typically provides a lower interest rate.

The Drawbacks:

  • Since this is a government agency, the application process is actually lengthier than the banks.
  • Your credit, resume, business plan and even your skills and ability to manage your business are scrutinized in the decision process for the loan.
  • Approval can take as much as 90 days

Credit Unions

Credit unions are similar to a bank, except that they are nonprofits owned by their customers. They offer small business loan products comparable to a bank.

The Benefits:

  • If you can meet the credit union’s requirement, they typically provide lower interest rates than a bank or other types of lenders.
  • A credit union is owned by its members, so the terms are usually more borrower-friendly.
  • There is often more flexibility in your creditworthiness than at the typical bank. Benchmarks are not set as high.

The Drawbacks:

  • Credit unions will require that you prove your creditworthiness with personal and business credit history and tax records.
  • You will still be required to provide a very detailed business plan outlining your business, product or service, competition, and marketing plans.
  • You must be a member of the credit union, which means opening a savings and checking account with them. You also need to be eligible to become a member. Typically members have something in common (like the area or state in which they live).

Alternative Lenders

There are other lenders that think outside of the institutional box of lending. They offer several funding options including small business loans, often with more flexibility and ease than banks, credit unions or the SBA.

The Benefits:

  • Alternative lenders offer small business loans with less stringent requirements and a faster application process. Interest rates may be slightly higher than a bank, but you stand a greater chance of approval.
  • Small business loans provided by alternative lenders typically take less time and their application and approval process may be easier to successfully navigate.
  • Alternative lenders tend to look more at your business potential than your past credit history, perfect if your credit is not ranked as “excellent”.

The Drawbacks

  • Since alternative lenders tend to take on greater risk with less stringent credit requirements than a bank, the interest rate is typically a little higher.

When seeking a small business loan, it is important to know and understand each product available to you. To learn more about your business funding options, contact Credibly today!