Contributed by Ty Kiisel a Main Street business advocate, author, and marketing veteran with over 30 years in the trenches writing about small business and small business financing.
Although it might not look like the pandemic is over, small businesses are largely back at it; serving customers and working on their businesses. Over the last 18 or so months, we’ve learned a lot from the experiences we shared wading through the challenges and chaos of 2020 and the first half of 2021. The SBA, through the PPP program and the EIDL program helped many businesses weather the financial storm, but those programs are either over or winding down right now.
What did we learn that will help small business owners access the capital they need to fuel growth and fund working capital now?
There Is Good News
Although many lenders not affiliated with the SBA either severely reduced their lending activities or stepped away from the market altogether, lenders are making small business loans again as the economy improves and have money to lend to qualified borrowers. In other words, they’re looking for borrowers. This is great news for a lot of small businesses that need capital to take advantage of opportunities that have emerged over the last few months.
What’s more, a “qualified” borrower is defined differently by different lenders. It’s true, there are a lot of lenders still looking for 720+ personal credit scores, multiple years in business, and million dollar annual revenues, but there are plenty of lenders anxious to offer a small business loan to a borrower with “fair” or better credit and a year in business, that meets other criteria less dependent on credit history and relies more on the viability of the business.
Here’s what some of those other criteria look like:
- Is your financial house in order? Many borrowers didn’t qualify for the PPP because they didn’t have the accounting records to justify their applications. If you haven’t already, qualifying for a small business loan or line of credit today will require that your accounting is in order—make it a priority. Start with a business bank account if you don’t already have one. Many lenders will reject your business loan application without even looking at it if you don’t have a business bank account.
- Many lenders rank revenue higher than credit profile. For a small business, credit profile will always factor into the equation, but if you can demonstrate that your business has the revenue and cash flow that will support periodic payments and service debt, that could trump a less-than-perfect credit score. If your credit profile is in the tank though, it’s still going to be tough. And, although some of this type of financing will be more expensive than a loan at the bank, depending on the lender it can be pretty competitive.
- Validating cash flow will be very important. Lenders want to know that you have the ability to make loan payments. It’s not uncommon for them to require access to your bank account to verify you have sufficient cash flow to service debt. They aren’t looking for the ability to change anything in your account, just access to look and see what’s there. It’s pretty obvious why this would be of benefit to the lender, but it’s also a great benefit to you. It streamlines the underwriting process and can make funds available faster—maybe as fast as 24-48 hours.
- Don’t fudge on the numbers. Be upfront with your lender, even if you have blemishes you’d rather hide. A good underwriter will discover any secrets you may have hiding in the closet anyway, so you’ll be helping them find the best financing for your situation if you’re upfront with what’s happening in your business right now. Most lenders understand the last year and a half have been challenging for businesses. While they might make allowances for those challenges, they want to see a fundamentally healthy business today.
- Make sure you understand all your options. I’m convinced there are more small business loan options available today than ever before, but if the only place you look is the local bank you’ll only see two or three potential options—and they may or may not be the right solutions for your situation. A marketplace like Nav will help you find multiple options that could be a potential fit for your situation, so you can consider which one will make the most sense for your business.
- Don’t be afraid to think outside the box. Even if you don’t qualify for a small business loan, a line of credit could be an option. Equipment financing is another option as well as financing that leverages the value of your Accounts Receivable. I’m a big fan of business credit cards because the barrier to entry is much lower if you have good to excellent personal credit. That’s an option I definitely wouldn’t overlook.
Small Business Financing Is Bouncing Back
As your business plans for the future, there is financing available for working capital, purchasing inventory, buying equipment, or otherwise funding expansion. You might have to dig a little deeper and look for lenders who want to work with businesses like yours, in the industry you’re in, offering capital to fuel the initiatives you’re trying to fuel. Don’t take the first “No” you get from the bank as the final word, keep looking.
Ty Kiisel is a Main Street business advocate, author, and marketing veteran with over 30 years in the trenches writing about small business and small business financing. His mission at Nav is to make the maze of small business financing accessible by weaving personal experiences and other relevant anecdotes into a regular discussion of one of the biggest challenges facing small business owners today.
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