Tag Archives: business financing

What You Need to Know About Online Lending Options

In years past, the vast majority of small businesses obtained financial capital through traditional bank loans. But since the 2008 recession, banks are more selective than ever about who they lend money to. According to a study from Harvard Business School, “Small-business loans made up nearly half of all bank loans in 1995, but that share had dropped to about a third by 2012.”

Luckily, there are several online lending options that small businesses can use to get the funding they need without having to jump through a bunch of hoops. But you first need to understand the basics of the process.

 

How Online Loans Differ from Traditional Bank Loans

It’s much easier to obtain an online loan than one from a traditional bank. Online lenders have far fewer government regulations to deal with and can examine a variety of different metrics such as your credit score, cash flow, and vendor payments.

Online loans are far more streamlined than going after a traditional bank loan. Everything is done online for a speedier application process, and you can get your money much quicker. There’s also more flexibility, and you can typically get loans that range anywhere between $5,000 and $250,000.

The main drawback is that you can expect to pay higher interest rates and heftier fees. That’s because online lenders tend to take a bigger risk than traditional banks, so they have to boost interest rates and fees to offset that risk. According to Value Penguin, “The Average Annual Interest Rate (AIR) for large national banks is only 2.24 percent to 4.77 percent, while the AIR for online lenders is 5.49 percent to 66.57 percent.”

 

When Online Lending Makes Sense

Here are some common reasons why you would want to explore online lending options:

  • You’re a new startup (less than two years old)
  • Your business didn’t qualify for a traditional bank loan
  • You only need minimal funding (less than $100,000)
  • You need money quickly
  • You’re looking for flexibility with your financing

 

Common Types of Online Loans

Here are a few specific types of online lending options that may work for your business:

  • Business line of credit – This is where you have funding available whenever you need it. You only accrue interest when you take money from your line of credit and only owe interest on what you take out.
  • Term loans – These are similar to a traditional bank loan but come from an online lender. However, there’s more flexibility with “medium-term” loans and short-term loans.
  • Equipment financing – This is a way to help you finance expensive business equipment such as machinery, vehicles, commercial kitchen appliances, etc.
  • Invoice financing – If it takes time for your customers to pay, a lender will give you a cash advance to ensure you have proper cash flow.
  • Business credit cards
  • Merchant cash advance – This tends to be one of the more expensive options but can get you cash in a hurry.

 

Online lending may very well be a viable option for your small business. However, it’s important to do your research and know which type of loan is most suitable for your unique situation. For more information on specific lenders along with their annual percentage rates, check out this resource.

 

Best Resources to Find a Grant for Your Small Business

Financing your business through a grant is ideal because you’re not typically required to repay the money. As a result, starting or expanding your venture can be done with minimum risk and maximum profitability.

While obtaining a grant is by no means easy and requires “stringent compliance,” there are definitely opportunities available. You just need to know where to look and how to utilize those resources to find a grant for your small business.

 

Grants.Gov

This is arguably your number one resource to find a grant. The Grants.Gov website is a vast one with a wealth of information including:

  • Grant Eligibility
  • Grant policies
  • Terminology
  • Application information

Visit the grant search page that’s specifically intended for small businesses. As of the most recent posting, there were over 1,000 different grants available with the majority focusing on research and development.

By browsing through this resource, you’ll see:

  • The grant opportunity title
  • Opportunity status
  • Post date and end date

By clicking on the opportunity number, you can learn the details to determine if you’re eligible and get other details on what you need to do to apply. Just remember that you must first register before you can apply to any grants.

 

The SBIR Program

The Small Business Innovation Research program is a, “Highly competitive program that encourages domestic small businesses to engage in Federal Research/Research and Development (R/R&D) that has the potential for commercialization.”

You can search for open funding topics to see if there’s anything that your small business would qualify for. Then, you can browse through the results to learn more about each grant. For instance, you’ll learn:

  • A program overview
  • Contact info
  • Eligibility Requirements
  • Open date and close date
  • Application due date

You must register first to participate in the SBIR program. It’s also a good idea to familiarize yourself with the website before diving in head first. You can even check out the tutorial section to get up to speed. The good news is that the SBIR reported that it awarded 300 grants in 2014 with an average funding amount of $624,807.

 

Grants for Women-Owned Businesses

This resource from Entrepreneur can be helpful for female business owners. It’s much less formal than the previous two resources and is basically a compilation of private grants.

There are 11 different programs in total, and you’ll see a quick rundown of the details as well as links to learn more and apply. Additionally, Entrepreneur offers some additional advice on the steps involved with applying for a grant.

It can be difficult to find a grant for your small business. Because the money for many grants comes from tax dollars, your venture needs to fit the right criteria, and you’ll need to do a substantial amount of research. If you’re diligent, there’s always a chance that you’ll find financing for your small business.