Is it possible to get a small business loan right now?
Posted April 8, 2010on:
When the financial crisis really started to kick in, the resulting credit crunch was murder on small businesses in need of cash. It didn’t matter how good your business plan was or what your prospects for repayment were — it was next to impossible to get small business loans for some time. The good news: the situation has changed and banks are lending to good candidates again. The bad news: timing your loan application to the availability of SBA funding can be tricky, and you may have to work a little harder than previously to show yourself as a good candidate.
Small business lending has started to pick up primarily due to changes in SBA loan guarantees enacted by the American Recovery & Reinvestment Act. By increasing SBA loan guarantees from 75% to 90%, the Recovery Act made lending more palatable for gunshy banks; by eliminating substantial filing fees it helped make loans more affordable for small businesses.
The primary downside of the bill has been its popularity. The available funds have been used up and replenished three times already — and the current round of funding is expected to run out by the end of April. For businesses that need funds now, the SBA programs are a huge hit — but they may not be around forever.
Even if Congress does extend the program again — and that seems likely — there can still be gaps in its coverage. The Wall Street Journal described the unfortunate predicament of one small business owner whose loan application was processed between rounds of funding, costing him $43,000 in loan fees.
So how do you get a loan?
Start with the SBA. Talk to your local SBA office to find out if loan guarantees are available. (Remember, you’re not actually borrowing from the SBA: they work with local banks and lenders.)
With SBA backing or not, start contacting potential lenders. Once you have all your application materials together, start contacting the banks in your area. Try to get a sense of your chances of approval before submitting a formal application: remember that every application you make is shown on your credit report, and it may take you a number of applications before you get the loan you need.
To improve your chances, you might want to consider reducing the amount of the loan you ask for. Trim your planned spending, delay some purchases, or look for savings in other areas of operation to make up for difference. Smaller loans are more likely to be approved.
For more information, check out our Business Loans Buyer’s Guide – but keep in mind that it was written before the credit crunch.
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