Back in the day, a small business owner had one option for getting financing. It went something like this:
- go to the bank
- get turned down
- go back to work
Today, with more and more financing options to consider, the challenge is more about picking the small business loan best suited to your type of business and your current situation.
If you need long term financing the bank is clearly your best bet. If you need short term financing for an opportunity or emergency, you have a lot of options. The next few posts will list some of the options available and some of the pros and cons of each
small business loan service. I’ll start with the bank.
Whenever possible, traditional bank financing is the best choice for long term financing. Banks usually have the best rates and the best locations (does anyone care about “location” in financial services anymore?) However, banks also have the highest turndown rate. Banks will also scrutinize you and your business to the point where you feel like groveling on your knees and apologizing for wasting their time. The bank will ask you for 22 years of audited financial statements, a 500 page hard-cover business plan and forecasts for the next 3,000 years. It can be a little onerous.
In addition, if you haven’t been in business (profitably) for at least 5 years or, god forbid, you own a business that serves food or liquor, you simply won’t qualify. To humor you, they might tell you to come down to the branch and “meet with one of our Small Business Experts” but they’ve already made their lending decision.
So, after you’ve wasted the better part of a day getting organized, driving to the bank, and sitting there waiting, you finally meet the “Small Business Expert”. He is a 23 year old recent grad from the Virgin School of Business that has been on the job for 3 months. For small talk, you ask him about his small business experience and his background in financial services. He says “I spent a lot of time at the corner store when I was growing up – I traded pogs for cash so ya, I’ve got a pretty strong background in finance.” You quietly lose it and leave. In rush hour. In a snowstorm. No snow tires.
For the fortunate few that qualify for a small business loan from the bank, it is definitely your best option. For the 95% of the rest of the small business community there are other options. Stay tuned – future posts will cover other small business loan alternatives including
Purchase order financing
Merchant cash advance