Looking to take your small business to the next level with a small business loan? We’ll show you how they work to help you make an informed decision.
Small business loans help businesses expand operations, hire more employees, purchase equipment and real estate, and refinance high-cost debt. According to the National Small Business Association’s annual report, 73% of businesses were able to secure financing, and 48% reported using a loan to meet their need for capital. The remaining 27% could not. Even though this number has been going down over time, there are still several obstacles that entrepreneurs have to face to receive the funding they deserve.
Some of the main drawbacks of the small business lending industry are related to the funding process. From start to finish, various inconsistencies and limitations can make borrowing a time-consuming and costly venture.
First of all, information about the borrowers’ credit is usually fragmented, making it difficult for small businesses to find and manage a single source of data from which lenders can pull. There are three major credit bureaus: Equifax, Experian, and TransUnion. Keeping your information updated at each bureau and understanding which one (or more) your lender will be using can help you prepare in advance. For more business credit best practices, check out our Small Business Blog where you’ll find actionable steps and advice from our lending experts.
Another challenge that makes low-cost funding less accessible is that traditional bank lenders can have time-consuming, complicated application processes when it comes to term loans. For small business owners who are busy and need capital, the time and work it takes to get approved can be unrealistic. Plus, different financial institutions each have their own various eligibility requirements. If you’re declined for a loan at one bank, you might be approved at another down the street.
Best lending options
Given these challenges, one of the best financing options for small business owners is obtaining a long-term loan. Because of longer terms, they usually have much lower monthly payments. You can apply for a long-term loan at your local bank, but because they’re fairly risky to make, you might find some difficulty securing the funds or get charged a higher interest rate to compensate for the additional risk. To address this issue, the SBA can make a guarantee on loans so that the impact of a potential default is not as strong.
The Small Business Administration (SBA) is a government agency whose leading program helps small business owners access affordable funding. By backing a significant portion of the loan amount, it reduces lenders’ risk in the case of default. In 2017, the SBA guaranteed over $25 billion across more than 60,000 7(a) loans.
26% of small business owners applied for an SBA loan or line of credit in 2017, and the approval rate was 54%. At SmartBiz Loans, we aim to improve that statistic. Our streamlined, online application makes the process clear and easy. Because we work with multiple lending partners, we match you with the best fit so you don’t have to do the extra work of going from lender to lender with different application packages. 90% of the SBA loan applications SmartBiz® refers to it’s banking partners are approved.
Our new, educational tool called SmartBiz Advisor is designed to empower small business owners like you to learn more about their business finances and strengthen their lending profile. By signing up at no cost, you’ll find personalized recommendations and helpful insights to show you where you stand in terms of key criteria that banks use to evaluate potential borrowers.
¹ NSBA, 2017 Year-End Economic Report. http://nsba.biz/wp-content/uploads/2018/02/Year-End-Economic-Report-2017.pdf
² SBA, SBA Lending Activity in FY17 Shows Consistent Growth. https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/sba-lending-activity-fy17-shows-consistent-growth
³ Federal Reserve, Small Business Credit Survey 2017. https://www.fedsmallbusiness.org/medialibrary/fedsmallbusiness/files/2018/sbcs-employer-firms-report.pdf
* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.