Where To Find Small Business Loans

With the economic crisis in full bloom, it’s increasingly difficult for small business owners to find capital needed to keep their business going. Cutting costs can only improve cash flow to an extent; eventually borrowing becomes inevitable without top line improvement. Unfortunately, traditional business lenders are tightening up their lending practices, making it very hard and time consuming to obtain the needed money.

Here’s an excerpt from Associated Press:

U.S. Sen. Charles Schumer is calling for federal help for small businesses that have been slammed by the ongoing credit crisis in the markets. The New York Democrat says the already tight credit market will become even more restrictive and, in his words, “choke small businesses struggling to pay the bills” for inventory, payrolls and other obligations. He is asking the Bush administration to set up a special direct loan program.

Where can a small business get money now to survive these times? For small business owners, peer-to-peer lending networks may become an important source of “emergency” business loans over the next few months or years. For example, Pertuity Direct, Lending Club, and Prosper allow you to obtain up to $25,000 within a few weeks without going through a lengthy business loan application process. Your interest rate is based primarily on your personal credit rating and credit history, making it a good option for responsible borrowers.

Since money will be tight during this cycle of economic slowdown, you may want to line up your potential funding sources in addition to implementing cost cutting measures. Traditional sources like banks and SBA Financial Assistance Program should be the first place to look, but keep peer-to-peer lending network in mind because it could come in handy.

5 Comments

PT
October 8, 2008, 13:15

First, I’m a big proponent of small business. But if they need to keep borrowing to keep the business afloat, should they be running this business? Seems like a big fail to me.
I understand some businesses need a flexible line of credit to keep things moving along as the pendulum of profits swings, but if you’re constantly borrowing then you’ve got a real stinker of a business on your hands.
That’s why I don’t understand this credit freeze thing. Who cares if they can’t get money. They shouldn’t be doing business if they can’t turn a profit and hold a little cash. The cream will rise to the top, right?
Sorry for the rant. I know this topic of lending is more complicated than I understand.
Great post on tying in the peer-to-peer lending aspect.
Pinyo
October 8, 2008, 13:25

@PT – I agree that a business shouldn’t have to keep borrowing to keep itself going. However, the bad economy will be squeezing a lot of businesses that can otherwise prosper during a good economic cycle out of business.
For example, higher end restaurants and retail stores will feel the most hurt since their fixed costs do not go away. They still need to rent the space, pay various bills, etc. Sure, they could cut some variable costs, but that will only help to a degree. If you want your business to survive over the next few months, borrowing may be necessary. Your hope is that the economy will recover enough for your business to become profitable again.
Of course, there will be some businesses that you may as well walk away from. In the end, these business owners will have to do their due diligence and risk assessment before moving forward.
Make Friends, Earn Money
November 7, 2008, 7:02

Small business is the lifeblood of most western economies and they account for around 53% of the business economy. Whilst the big companies get all the press and are being propped up by government it’s the small business owners that appear to be suffering and in the long term this can only be a bad thing for consumers as it means less choice and less competition. I think that the importance of lending to small business is even more important now than prior to the credit crunch and failure to do so will ulimately cost the economy. Whilst I do believe in a free market economy, we are in unusual times and letting small businesses go bust is not an option.
jc12
November 19, 2008, 16:46

It is true that somehow businesses that doesn’t borrow is impressive. But at times, when the business needs to borrow, loan is the last resort. By doing this, the business is just meeting its financial goals by way of loans.
John Shelton
January 7, 2009, 19:13

The problem is that MOST small businesses CAN’T even get a line of credit to purchase normal things that make a business successful. And finding where to go is another hurdle. I got lucky and found Blue Dolphin National and they got me the Line of Credit I needed. Also they set me up with corporate leasing on ALL of my equipment so I could maximize cash flow. I have now paid off my LOC and it is there if I ever need it. If I didn’t get the credit I would be out of business. Now I am good and set up right.