banking

The Different Types of Small Business Loan Options

April 14, 2014

Finding capital to grow your business is much different today than at any other time in history. Getting the appropriate funding is much more difficult today because when the economy is on a down turn, the financial institutions put limits on the amount of money they can lend. They also tighten up the restrictions, which makes it even more of a challenge in securing a loan. While there are many different options available to the borrower, these can become confusing and often leave the company unsure on even how to approach a lender for money. Here are the different types of options for securing small business loans.

Part of the overall confusion when it comes to applying for small business loans is how different institutions classify the size of a business. The difference in a small business versus a lower middle or middle market business is almost impossible to define. Where some lending institutions define size by gross revenues, others may use number of employees. The goal of the small business should be to clearly define the size of their company on multiple platforms. This way when approaching the lender you are assured of having at least one of the parameters that they use in gauging the size of a business.

Investors today understand that they need to put their money in small business because the return on investment in many traditional sources has little value anymore. The bonds and certificates industry returns such a small percentage that investors are seeing no growth in their investments. More of the institutions and companies that have funds to invest are now looking at small businesses to help to grow their money. Peer to peer lending has opened up many new opportunities for both the investor and the small business owner looking to secure a loan. This unique type of lending allows the business owner to reduce debts, create new ventures, and expand their business. This process simply allows the borrower to be screened through an application process, and once approved qualified investors bid on a portion of the loan offering.

With many of the top lending institutions facing financial crisis themselves, the small business owner has to look at whatever options they can to fund their growing business. In the past if your company need a few million dollars to expand its base, you would be hard pressed to get one lending institution to take on that risk. Today with more investors eager to grow their money, they are willing to take a risk on an up an coming business. This means you have to have all your numbers in order as you approach these pools of investors. They want to see that you are growing over the years and not taking on more than you can handle.

Another option for small business loans is paid client work. Here you leverage your experience and skill in return for capital that you need to grow your small business. Working with other companies in your industry and lending your skills in return for capital, you gain the money you need to sustain the business while honing your skills that you will need eventually when you are able to launch the business on a grander scale. If your company plans on taking over the world with a unique type of software, you may not be in the game if you don't secure funding today. Consider selling your skills to local software companies that need coders, and use that funding to expand while you work both ends at the same time.

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