Whether you are an entrepreneur starting a business from the ground up, an investor searching for an attractive franchise in which to invest or an owner in need of financial assistance for your small business during an economic slump, one of the most important factors is your ability to get the funds to finance your dream or to sustain your current enterprise. There are several sources to tap into for information about your financing options.
1. Getting help from government-backed loans
The first choice for many business owners in need of financing is a loan through the U.S. Small Business Administration (SBA). The SBA has various loan programs depending on the needs of your business, including:
- general small business loans
- microloans
- real estate and equipment loans
- export-assistance loans
- loans for seasonal working capital for established businesses
Unfortunately, SBA loans are not for everyone. Some lenders will not issue SBA-backed loans to new or startup businesses. A lack of collateral or other underwriting requirements could put an SBA loan out of your reach. This is particularly true for startups or businesses that have not been in operation long enough to establish a credit history.
2. Obtaining financing from alternative sources – online lenders
One alternative financing option that is growing in popularity is online lenders that offer unsecured loans at varying rates with a quick turnaround time. Some of the online lenders are backed by financial institutions that also provide traditional loan products.
Resorting to online lenders that are not affiliated with major financial institutions can be risky. Lending regulations that apply to institutions might not always apply to the online lenders. It is a good idea for business owners to review any financing arrangements they are considering getting involved in with an experienced business formation attorney to ensure that the terms of the loan, including interest rates and fees, do not violate state usury laws.
Usury laws limit the amount of interest that may be charged by a lender in a transaction. Commercial loan lenders that are not traditional banks might not be subject to state usury laws, so loans could come with astronomically high interest rates that may be detrimental to your business in the long run.
Other alternative financing options include non-profit micro lenders and crowdfunding.
3. Using non-profit micro lenders
Non-profit micro lenders generally focus their attention on small businesses in need of loans that usually do not exceed $50,000. Borrowing from non-profit micro lenders can be a challenge because their limited resources could restrict the number of businesses they can assist at any given time.
4. Using crowdfunding
Crowdfunding has grown in popularity in recent years as an alternative to traditional lending sources. Websites have sprung up that allow entrepreneurs with startups and small business owners in need of capital to reach out to a large pool of potential investors. Instead of borrowing from only one lender or investor, crowdfunding puts the power of the internet at your disposal to find those willing to provide funding.
Seeking advice from an experienced business formation attorney
The best place to start after you make the decision to seek financing is to make sure your business documentation is in order to make the application process smoother. A business startup lawyer like Jaime Dowell at McKenna Storer can help with legal advice and sound guidance. Feel free to contact our office to discuss what business documents you should have ready and what financing options might be best suited to your business and its needs.