Banks are not currently and probably will not be lending to small, growing businesses anytime soon. They view these small firms as too risky and banks are just not taking on any risk (any risk at all).
But, that does not mean that your business cannot get the money its needs to start or grow. You just might have to go about it in a different manner which, in the long-run, may be a benefit to you and your business.
For most small business, banks are not lending as they don’t want any loans with any risk on their books. While they do want your deposits and other account business, they are just unwilling to let money walk out the door.
They blame these small businesses for items like poor credit, inadequate cash flow or undervalued collateral but in truth, many of these banks are just not in a position to lend to what is deemed risky businesses. And, if your business does not really need a loan, then it is deemed risky.
What Can Your Small Business Do?
For established small businesses, if your banker is refusing to take your call (and most are) then you should be looking at some of the alternatives methods of financing that have been around for decades or that have recently cropped up to fill the lending gaps left behind by the banks.
Know that banks are not nor have always been the only and best options for small businesses. Banks tend to look at your overall business’s profits before making a business loan decision. Alternative financing options tend to look more at the need of the business and its ability to covert financial assets to cash.
1) Look to factoring. If you have customers in the wings but lack the working capital to get these jobs started, factor those job orders for 100% of the cash you need to complete those jobs. Or, if you are sitting on a bunch of unpaid invoices, look to use them to get the working capital your business needs to meet immediate expenses or start that next order.
2) Look to SBA loans. While these types of government guaranteed loans still have to go through banks – the SBA’s 504 program is leading the way in helping many local small businesses acquire and finance property and equipment. With the SBA’s 504 program, your local community development corporation will work with the SBA and your bank to finance hard assets. As they all spread and share the risk, your chances of getting funded increase dramatically.
3) Let your business finance its own growing needs. There are a lot of growing businesses that tend to have a lot of sales but are still losing money (more cash out then in). This is not a reflection of the economy or any market but that of how the business is managed.
Look for ways to reduce costs while maintaining your current level of sales or if that is not possible then look for ways to increase prices. You should always be looking for ways to reduce costs – even if your business is highly profitable.
Keep shopping around for lower cost suppliers and vendors. Look to technology to improve processes or for ways to reduce staff expenses. And, constantly review your service providers – no sense in over paying for services like phone, internet, etc. If you can get your costs down and bring your profits up, you might not need outside financing at all. The best business loan is not having to get one in the first place.
Business is not easy and is getting harder the longer our economy remains stagnate. However, people and businesses still need products and services to get through their days. They look for products that either make their life easier or save them time and money. And, while many are being more selective in what they spend their money on, they are still spending – good news for your business.
Getting and keeping customers (letting them know who you are and what your business offers as well as keeping your business on the top of their minds) is always a challenge. But, successful businesses get out there and find creative ways to meet and overcome those challenges. The same is true in financing your small business.
If you need capital to either get your business off the ground or to finance your current growth, you might as well just forget about the banks and get creative. Banks are just not ready to take chances.
If you can’t demonstrate (sell) your business’s potential to the many different financing options out there (some that really want to work with your business) then you might start thinking about another career.
Finding new ways to capitalize your business is just one of the many challenges that all businesses face in their development. But, the good news is that it is not the most daunting challenge you will face. If you need a business loan to start or grow your company, then get out there and get one!
Joseph Lizio holds a MBA in Finance and Entrepreneurship, is the founder of Business Money Today, has a strong commercial lending background and is regarded as an expert in business and finance – specifically Small Business Loans and Working Capital.