When the economy is in the midst of challenging times, getting small business loans can seem impossible. Banks are not going to be as generous in their financing as they were in the past. It could be that you are starting a small business because you just went through a layoff and haven’t found work yet. The latter situation would make it especially difficult to get a small business loan. You may have poor credit and are not sure if you can try your hand at entrepreneurship. Whatever your situation, money is available for funding your small business but it will take a lot more work to find it.
Look into self-funding. Instead of getting a loan, use your savings or other liquid assets to fund your small business. Of course this puts your personal nest egg at risk so you will want to make absolutely sure that this is the right choice by consulting with others. You need to also seriously evaluate how well you think your new business will do in the beginning. Oftentimes, it takes a couple of years before a new business starts making significant profits. Will your self-funding allow you to stick it out that long?
The U.S. Small Business Administration has some funding programs. One such program is the SBA’s Micro Loan program where they loan money to an intermediary (lending institution) who lends it to the applicant. These loans have become quite popular since banks tightened their belts on extending traditional business startup loans. The intermediary will usually have the applicant put up collateral for a micro loan. These loans are great for those businesses that would have trouble getting a traditional bank loan. This is because they are typically focused on those with poor or no credit, women and minority business owners, and low-income entrepreneurs.
Apply for a U.S. government grant. Contrary to what some think, this is not free government money. To be awarded a government grant, the small business must meet specific requirements as outlined in the announcements. Not every type of business can get a government grant and the process is very involved but if you have a service that they are looking for then it’s worth a try. Keep in mind that grant money from the government usually must be matched with funds from other financing.
Get one or more investors. This should be your last course of action when all other efforts prove fruitless. Investors will use their own money to fund your business. They usually want part ownership in your business or a share of the profits. The reason it should be your last course of action is because when investors are involved, you lose some independence in your decision making. Also, the risk is not only yours but now belongs to others. You must have a high degree of certainty that your business idea will prove successful. Otherwise, things could get stressful when your investors don’t see their returns.