Where to look for small business loans

With the boom in start-up and gig economy, small business lending is expanding like never before. From marketplace lending to venture capital funding, small business owners have a plethora of financing options to explore. If you’re looking for funding to expand your business, here are five lending places that you should check out.

1. Financing through Family and Friends
2. Traditional Lenders
3. Marketplace Lenders
4. Crowdfunding Platforms
5. Angel Investors and Venture Capitalists

1. Financing through family and friends

If you are an entrepreneur starting out then probably you have done this already. Reaching out to a rich family member to take off your business is nothing unusual. It is a popular choice of loan because of its easy access and can be paid into a mutually agreeable term (often in interest). According to a national survey by Fundable 38% of start-ups rely on family for loans. Hence, it won’t be wrong to presume that these types of deals are more than common although there might be some problems with structuring the loan. An improper structuring of your loan can damage your relationship with your loved ones. Hence, remember to discuss some of the crucial points when going for a family loan. Discuss the terms of financing, how you are going to use the loan, what kind of support you are expecting, how and when you plan to repay back, etc.

2. Traditional loans

Now everyone doesn’t have that rich aunt or a friend. For those small business owners, traditional lenders are always there who can help you with finances. If you are going for a traditional loan, do remember that securing a traditional loan is tough and you need to have an air-tight business plan to get your loan application approved. Collect all your documents that speak for your personal credit history, your intended purpose of the loan, the amount of loan you are expecting, your business credit score, business plan, business license number, entity type, and how long you are in the business, employer identification license and permits, bank statements, balance sheet, personal and business tax returns, ownership and affiliation and lot more. Also, remember the traditional loan application process takes 29 hours to complete with an 80% rejection rate. Hence, do give a solid thought and assess your chances of getting your application approved before spending your time and energy on traditional lenders.

3. Marketplace lenders

With the whole world leaning towards digital and internet technologies, small businesses are more viable to enterprising individuals than ever before. These are fast, minimal paperwork, a fast-track application process with a 70% approval rate for applicants. The lending marketplace offers different options for you so that you can evaluate and choose as per your requirement. Some of the popular marketplace loan products that you can find include business term loans, short term loans, SBA loans, equipment financing, and many more!

4. Crowdfunding Platforms

Crowdfunding is not only popular and widely preferred among small business owners but it is an exploding industry too “with over $2 billion raised via equity and reward crowdfunding in the United States in 2015 alone,” says the Harvard Business Review.

Crowdfunding works great but only for a handful of businesses that are looking to fund product development and dispersal. However, if you are a woman entrepreneur, then there is some good news for you. Recent research reveals that women are 13% more likely to succeed in raising money on crowdfunding than men. In short, if you have an outstanding marketing team and a product that can be shipped, crowdfunding is a viable option. If not, there are still other options for you.

5. Angel Investors and Venture Capitalists

Before we explain this option to you, let’s understand the difference between the two. Angel investors are usually single, often a wealthy entrepreneur, who funds and helps small businesses grow. While Angel investors usually invest in budding start-ups, VCs prefer to invest in companies that are around for a while and have solid bottom lines to show. And ultimately, VCs invest more money compared to angel investors. According to the Small Business Administration, the average venture capital deal is $11.7 million, while the average angel investment is $330,000.

So, now that you have all the information in hand, work on the option that suits best for your business.