© Business.com Media, Inc. All rights reserved. | 888.441.4466

© Business.com Media, Inc. All rights reserved. | 888.441.4466

Table Of Contents

• Overview – Page 1

• Commercial Bank Loans – Page 2

• Small Business Administration Loans – Page 3

• 3 Types of Small Business Loans – Page 3

• Online Financial Services & Crowdfunding – Page 4

• Conclusion – Page 5

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The Difficulty of the Hunt

As a small business owner, your most

difficult job is finding the money to jump-start or

operate your business. Pursuing the right type of

funding is even harder. Knowing the different forms

of available small businesses loans can reduce the

challenges in the credit-hunt and put you on your

way to subsidizing your business.

Obtaining financial support for your small business

is proving difficult for small business owners and

entrepreneurs, even as the economy heals itself.

According to the Pepperdine Private Capital

Access Index,

59% of business owners admitted to difficulty

in finding and securing funding and only 33%

of loan applicants were able to secure a loan.

Businesses across the nation have a gloomy

outlook for the future of loan financing. 65% of

respondents said they expect the process of raising

capital to continue being difficult over the next 6

months.

59% believe their current business funding is

restricting growth opportunities and 52% believe its

keeping them from hiring new employees.

With this pessimistic outlook towards the challenges

of obtaining external financing, 63% of businesses

plan to obtain a bank business loan and are still

remaining hopeful despite the challenges.

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The Line Up of Small Business Loans

Although there are various options for

external financing, small businesses are still

hunting down loans to get their dreams up and

running. There are basically three sources for small

business loans:

• Commercial banks

• Small Business Administration loans

• Online financial solutions

Commercial Banks

Bank loans are the largest source of financing for

small business loans. In part, this is because they

usually offer the most favorable loan rates.

However, commercial credit markets remain tight.

According to the Thomson/Reuters/PayNet Small

Business Lending Index (SLBI), small business

lending decreased during the first quarter of 2013.

Commercial banks cut back on their lending due to

the economic downturn, and have remained

conservative in making small business loans.

The top commercial banks now control

60% of U.S. bank assets, but provide only 27%

of small business loans.

Fortunately, local community banks, which rely more

on traditional lending to make their money in

comparison to big banks, are much more receptive to

the small business owner. According to the

Independent Community Bankers of America (ICBA),

community banks have only 20% of all bank assets,

yet make almost 60% of existing small business

loans.

Small Business Loan Reasons*

54% Planned growth, expansion or acquisition

56% Working capital fluctuations

47% Increased demand already realized

46% High need due to planned growth

*Pepperdine Private Capital Access Index

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Small Business Administration (SBA)

Loans

The SBA is a government agency that does not

make direct loans. Instead, it facilitates loans that

are made by SBA lending partners, which include

banks as well as other financial services. The SBA

guarantees these loans will be repaid, thus

eliminating some of the risk to lending partners.

When a business applies for an SBA loan, it is

actually applying for a commercial loan,

structured according to SBA requirements with

an SBA guaranty of repayment if the borrower

defaults.

The SBA can save you time and your sanity by

connecting you with banks in your area that are

interested in making small business loans.

However, you may not qualify if you have access to

other financing on reasonable terms.

SBA lending has been going up. According to

the U.S. Small Business Administration, small

business hit $30 billion in loans for the third

consecutive year in fiscal year 2013.

2012 was the second largest SBA lending volume in

its history, with community banks comprising a

growing source of funding. The SBA reports that the

total number of loans increased from 53,848 to

54,106 in 2013.

“54,106 loans were approved in

fiscal year 2013”

With SBA lending on the rise, it’s still important to

know the type of SBA loan that’s most suitable for

the financial goals of your establishment. There are

three primary types of SBA loans:

3 primary types of SBA loans

The 7(a) Loan Program offers financial assistance to businesses with “special requirements,” such as those that operate in rural areas, export to foreign countries or qualify as having another qualifying “special purpose.” This loan allows businesses to purchase land, acquire new companies, and start new construction projects.

The Microloan Program provides small short-term loans to small businesses and some non-profit childcare centers. The maximum term allowed for a microloan is six years with interest rate between 8 and 13 percent. These types of loans are beneficial in growing inventory, purchasing equipment, or buying machinery, supplies or other fixtures.

The CDC/504 Loan Program

offers loans to small businesses with long-term fixed-rate financing for the purposes of

expansion or modernization. This loan offers modern businesses 90% financing, longer

loan amortizations, fixed-rate interest rates, and overall savings.

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Online Financial Services

For those who can't get a traditional bank loan - or

anyone looking for better small business lending

rates and terms - the Internet is a growing source

of funding for small business. There are online

networks for investors who pool their money to

offer loans.

Crowdfunding is an Internet lending source quickly

expanding in popularity. Instead of one large loan

from a single provider, crowdfunding solicits small

contributions from a large group of investors via the

Internet. The 2012 federal Jumpstart Our Business

Startups (JOBS) Act contains a specific provision to

promote crowdfunding activities.

More than $1 billion of capital could be generated

through crowdfunding platforms. Kickstarter has

seen over $883 million in pledges and launched

over 52,074 projects. Indiegogo has helped raise

millions of dollars for tens of thousands of

projects in 194 countries.

There are, however, certain strings attached with

crowdfunding. Here are a few downsides to finding

funding online:

• Projects need to be proactively marketed

• The risk for disgruntled investors

• Loan max of $1 million in a 12-month period

• Must comply with security registration req’s

If you're anticipating rapid growth in the next

year possibly requiring additional financing,

crowdsourcing may not be the best source for

the scope of your business.

Although the interest rates are usually higher than

what you'd pay at a commercial bank, the rates are

lower than what most finance companies charge

for merchant cash advances, a favored source of

short-term funds for business owners who can't

secure bank financing.

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Summary

Thanks and come back soon.

With the growing number of small businesses popping up, securing

a business loan has proved challenging and competitive for most

loan applicants. Having a clear insight into the line-up of options,

you can begin to research, target, and hunt down the most

appropriate loan for your small business.