When banks say no: 4 alternative funding sources

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Banks still aren’t lending or they way they used to  — especially when dealing with small businesses. So what’s Plan B? Familiarizing yourself with proven alternative funding sources.

Despite some recent encouraging economic signs, 75% of domestic banks said they’d tightened credit for small businesses, according to the Federal Reserve’s latest Senior Loan Officer Opinion Survey in April. That’s up from 70% in the January survey.

But more firms are finding success through these non-traditional funding options:

  1. Fed-backed loans. After the passage of the American Recovery and Reinvestment Act (ARRA), the weekly loan dollar volume on small business loans, such as 7(a) and 504 programs, jumped 40%.
    Added bonus: ARRA allows the Small Business Administration to temporarily waive a fee it charges banks — which is in turn passed on to the borrowers.
  2. Credit unions and community banks. These institutions, credit unions in particular, were largely unaffected by the housing crisis and are issuing loans to small businesses as the lending outlook improves.
  3. Peer-to-peer lending. These networks are experiencing a resurgence thanks to tightened credit. Examples: Virgin Money’s speciality is setting up business loans between friends, family and associates; Lending Club will only set up credit-worthy borrowers with lenders.
  4. Microlenders. These lenders are more willing to take a chance on start-ups or businesses with questionable credit histories because they rely on donations from individuals and charitable organizations.
    Downside: Microloans usually carry higher interest rates than bank loans. The Small Business Administration offers microloans at interest rates of between 8% and 13%.
  5. Asset-based loans. These lenders purchase a company’s accounts receivables for 80%-90% on the dollar — to lend against them. LSQ Funding is an asset-based lender that works with only small and mid-sized businesses in the U.S.

0 thoughts on “When banks say no: 4 alternative funding sources”

  1. Due to restrictive lending practices of banks at this time, would their be other aveneus of gaining financing for owners on construction projects? Also, at somewhat competitive rates compared to other banking institutions? Any ideas?

  2. We had to get a micro loan of $12,500 to make ends meet. It was not untill we got to the closing table that I found out it was at a rate of 22% plus the interest is frontloaded like a mortgage.
    We are now aquiring an ARC loan that is interest free to cover our outstanding debts.
    I am just amazed how bad the economy and spending is right now.

  3. We were looking for an SBA loan to expand our inventory as our business is only 9 months old but very profitable. The banks we approached for SBA all said we needed to be in business for 2 years with audited tax returns. Who is actually getting ARRA loans?

  4. Michael Archbald

    We’ve been trying to secure a $200,00 loan from a local bank with 90% backing from SBA. We have been jumping through hoop after hoop and each time the closing looks ready to schedule they ask for some other method to assure they will get their 10% if we fail. We have been open for ten years now and this process might take us well into our second decade.

  5. Banks make all the rules when it comes to the SBA Program. SBA pays lip service and leaves us to their mercies even when the Fed backs them–Banks still want that guarantee plus our own dollar for dollar collateral. It is shameful. MY Bank, one of the larges to get bail out billions, flat told me that even if I am awarded a federal contract worth millions over 5 years, they will not fund any part, stating, and I quote the bank officer ” we dont want any part of the federal market”.
    Also, just had another large bank come to me offering immediate help with Am Recovery Act $, then turn around 24 hours later and say they opt out, because there is too much paperwork involved with Feds. The SBA and the other Fed offices have totally failed the small business community.

  6. We have been working on funding for well over 1 year and with one of the leading underwriters for the SBA for 6 months and now. I am being told the amount I want is too little for the banks to consider for the 504 or 7A even though it would include purchase of property we operate from, (No a commercial loan with 30% down is what the bank suggest). The sad part of this is the same bank making this crazy suggestion I owe a credit line that will go term in March of 2010 and they don’t even seem to think that could be an issue with the slow recovery?
    I believe I have discovered where they now send the mentally deranged as there are no institutions available to them any longer.
    If you are not looking for 1 to 3 million dollars they don’t want your business. Even if it started in 1966 is a risk now days because it could fail (with this kind of run around yes it could fail).
    Now how is it a company that feeds 6 families and supports a town of 17,000 needs with business direct services not considered a small business? We even offer services that the government is thinking about cutting back on and what is currently offered from our Post Office in our town does not even meet our need for PO Boxes alone.

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