There are currently 34 million Americans who are without a bank or underserviced by their current bank, according to a recent survey from the FDIC. How is this possible you may ask? Well, many individuals simply don’t know where to turn to obtain credit.
Our weakened economy has made starting a new business more challenging than ever. The process for getting a loan requires mass amounts of calculation, documentation and time. Well, we don’t agree with this convoluted process. It is our goal to help small businesses learn the best practices that we have gathered using our financial intelligence tools. Below are the top three ways we suggest entrepreneurs pursue their venture to gaining capital.
Explore other avenues for offering loans
Many individuals walk straight into a bank expecting an instant loan. However, even the very first step of the loan application can be overwhelming: filling out the paperwork. Small Business Association (SBA) loans require massive amounts of information which can be difficult to gather and put your best face forward. Ask your bank about non-SBA loan applications that require less paperwork.
On top of complicated and lengthy applications, the average approval rate from a traditional bank can take months to process. With such a long wait time and extensive requirements, many hopefuls have recently turned to alternative lenders which can provide an easy and fast approval process within days.
Unfortunately, that capital comes at a cost. Commercial alternative financial services such as factoring, purchase order finance and asset-based lending come with high interest rates ranging from 18% to 45%. Therefore, we recommend asking your traditional banker about online applications for small business loans, rather than going directly to an alternative lender. This augments the process so that you can save money in the long run.
Finally after filling out an online application and inquiring about non-SBA loans, if you still haven’t received the credit you need to build your business – ask about the loan guarantee program. If you’re a US resident and a lender rejects your application, you may be covered under the SBA’s loan guarantee program. Through this initiative, the SBA guarantees loans that financial institutions couldn’t otherwise afford to make. If your bank accepts this program, give them permission to send your loan application to the SBA and they will review your submission in full. If you qualify, the SBA will contact the lender and you will then receive a loan through your local financial institution.
Embrace new technologies
One thing a majority of applicants don’t even consider is asking their financial advisor if they have any new technologies that might help streamline the approval process. Well, chances are your bank may have software-as-a-service (SaaS) programs that provide automated financial insights in a matter of seconds. A majority of lenders require financial statements from the past three years including balance sheets, income statements, and reconciliation of net worth. If your banker uses programs like Finagraph they can present all of this information in one fell swoop – opening a new window to quickly display the overall health of your business. Additionally, software services like Lendio can provide a list of other potential lenders, broadening your search and options.
Another great tool for monitoring your business’ progress is to use new CRM (customer relationship management) software. These platforms implement the sales process and provide additional metrics for measuring the success of each particular part of your business.
Lastly, social media may seem like it has nothing to do with helping you get a small business loan. However, if used correctly, we’ve seen the impact social media can have on growing a business. Financial institutions acknowledge this movement, and have even started viewing a potential borrower’s social media sites to determine their success within the community.
Maintain and foster a relationship with your banker
The best place to get a small business loan is still your local banker, and sometimes we forget about the long, lost art of relationship banking. However, building a strong foundation with bankers in your area is essential to fulfilling the loan application process. Community banks are more likely to offer small business loans than bigger banks. Since all loans take the same amount of underwriting and servicing the smaller loans are considered less profitable. However, community banks would welcome the opportunity to grow alongside your business. In addition to connecting with your local banker, visit the various SBA partners that may be able to provide extensive help including:
- SBA District/Branch Offices– at least one in every state
- SCORE– Counselors to America’s Small Business (approximately 300 chapters nationwide)
- SBDCs – Small Business Development Centers (approximately 900 locations nationwide; associated with higher education institutions)
- WBCs– Women’s Business Centers (approximately 100 educational centers nationwide)
Finally, look at your business from the banker’s perspective and understand the risks of operating in your industry. Provide a plan to offset those risks and share it with your financial institution, because they are likely going to do a risk analysis anyway. It’s important for the banker to see that you have the business acumen to identify the risks, highlight the opportunities and provide the solution.
With this arsenal of information and technology, your future is just a click away.