So, you need some cash for a new truck or new camera? You’ve probably looked into a small business loan but have yet to take the plunge. It’s new to me too. There’s a lot of information out there — marketing gimmicks and sketchy “too good to be true” offers included — but the bottom line is that the capital you need to grow your business isn’t easy to get or afford. I talk with Thumbtack pros every day who tell me how difficult it can be to find funding. Dealing with a bank is often time-consuming and confusing, and alternatives to traditional bank loans can be very expensive.
Before applying for a loan, you should consider the following:
How much money do I need?
This is key. Understanding your needs might be the most critical step before applying for a loan. Third-party referral partners will often apply to get you the largest amount of capital available — not how much you need. This may trap you into dealing with prepayment penalties among other issues. Bottom line: you should apply for only what your business needs.
Consider how much interest you can afford to pay monthly. Also, once you’ve begun the process, make sure you know how much you’re actually paying for the loan. Take a look at how Fundastic analyzed this offer sheet.
If you’re still stuck, the U.S. Small Business Administration has offices throughout the country (listed here) that can help. We’ve heard complaints that the government can move too slowly for some people, but at a Thumbtack event in January, the SBA Administrator outlined what they’re doing to improve this.
Do I want a business or personal loan?
Your cheapest source of capital — generally, traditional banks — will probably require you to have an incorporated business and a documented source of revenue before they’ll give you a loan for your business. If you’re just getting started, or you’ve been running your business on the side before diving in completely, you might not qualify for a bank business loan.
If you don’t qualify or need financing more quickly than a bank can provide, consider online lending companies that offer either people loans for business use or business loans. These can be quicker and easier to obtain, but make sure you know what you’re getting into.
Lenders that offer personal loans will look at your personal finances and credit score — they don’t necessarily need to see the books for your business. But keep in mind, personal loans are personal debt. They affect your personal credit and could impact your ability to lease a car or mortgage a home.
Lenders that offer business loans, on the other hand, will most likely look at both your business finances and personal credit history. You might need a certain amount of revenue and to have been in business for about two years — but you can likely get a larger loan, and remember, this is business debt (and typically won’t impact your personal credit score).
Thought about equipment financing or equity crowdfunding?
There are many business financing options available — and some of the more creative ones might be better alternatives to a traditional bank or online business loan.
Fundastic does a pretty comprehensive job of breaking down 11 types of business financing here.
Looking for more banking services than just a loan?
Maybe a brick-and-mortar bank is right for you. Find the right bank by considering the following:
- Your banking needs beyond a loan
- Size matters when you consider a bank’s client services and their understanding of, and investment in, the local business community
- Your needs can change (and so can your bank’s services and fees) so reevaluate and shop around periodically
- Find a partner that will help you plan for the future
- You can find more tips here
Here’s a straightforward guide to choose between small banks and big banks from The Wall Street Journal.
This only scratches the surface when it comes finding capital for your business, and I’m sure you still have plenty of unanswered questions (as do I). I’ll keep sharing more resources to help you find the best financing tool for your business — and if you have specific questions or stories from your own experience, please let me know.
Is this useful? Did we miss something? What else can we do to help your business? Email us back, comment on the blog or tweet #AskThumbtack.
Quick — and important — disclosure: we’re sharing articles we found helpful for informational purposes only. Please seek appropriate financial and legal counsel for assistance.