When the coronavirus pandemic hit the U.S. in full force earlier this year, small businesses had a laundry list of issues to deal with. Perhaps the biggest was the lack of access to financing.
Businesses had to overcome restricted hours and operations, decreased demand, and disrupted supply chains. All the while, few financing options—from banks, to private lenders, to credit card companies—were available to them. Whether you were looking for capital to keep your business afloat, or even (in some cases) grow your business, small business lending was at a low point.
The only recourse for many businesses was the federal government’s Paycheck Protection Program. Now that the PPP is coming to an end, where can businesses turn for financial help?
In some ways, the financing landscape is returning to “normal.” The pandemic also revealed the power of government-backed capital to many business owners. Let’s review a list of financing possibilities for businesses looking for funding in the near-term and beyond.
If the PPP was the first time you’d heard of Small Business Administration business loans, you’re in luck: There’s more where that came from.
The PPP was a program created to address the economic fallout of the pandemic. The interest rates were very low (1% interest is unheard of in this space). Qualifying for the loan was as simple (with a few restrictions) as proving you were in business before February 15, 2020.
Traditional SBA loan programs aren’t quite as generous or as easy to get. But when it comes to small business financing, there are few better possibilities on the market.
The SBA offers loan products geared towards specific businesses, owners, industries, or dollar amounts. The programs all typically work the same way: The government does not disburse the loan itself; instead, it partially guarantees loans from a bank or nonprofit lender, which encourages the lender to extend an offer to a small business that might not have received a loan otherwise.
Options include the popular SBA 7(a) loan program, which loans up to $5 million to businesses that need working capital, are looking to expand or renovate, want to buy equipment, or have to refinance debt, among other use cases. There’s the 504/CDC loan program, which is best for purchasing fixed assets and real estate; or the Microloan program, which lends to new businesses asking for less than $50,000 in financing.
As the SBA loan program demonstrates, it’s not always easy for small businesses to obtain bank loans without government help. While small businesses are unlikely to receive a long-term loan from a major bank (unless they are well-established and as low-risk as it gets), they may see success by applying for a loan through a smaller, community bank.
Smaller banks were instrumental during the PPP process, as many national banks like Wells Fargo and Bank of America turned away business owners who didn’t meet specific requirements. Building a relationship with a community bank or a nonprofit lender that has a mission to aid and fund local small businesses is a potential path to low-cost financing through them.
Get in touch with a relationship manager at a local bank or nonprofit lender. Discuss whether moving your money over to their institution could work in your favor when it comes time to apply for a loan.
The PPP and other SBA loan programs are federal government small business lending programs. In the wake of the coronavirus pandemic, state governments and local organizations have also rolled out loans, grants, and other financing programs geared towards helping small businesses survive and thrive.
Check out state-specific initiatives and resources for funding in your area. You may find that the state has a program specific to your industry, community, or situation. Examples include funds and programs that look to finance women-led businesses, tech startups, microenterprises, street vendors, and more.
There is an entire class of online lenders that look to fund small businesses that are a higher credit risk or have not been in business very long. This niche emerged in the wake of the Great Recession, offering short- and medium-term loans, lines of credit, invoice factoring, and other forms of small business financing.
These products typically have higher interest rates than what you would get from a bank. They also have less stringent requirements for qualifying, and have much faster turnaround times—underwriting can take as little as one day.
When the pandemic first hit the U.S., online lenders tightened their credit boxes or “turned off” lending entirely. Now, many of these lenders are opening up again, though some will focus on shorter-term products for now. Some are only lending to specific industries. But if you’re looking for a quick source of capital, it’s worth exploring your online lending options to see what’s available.
One final financing option is a quality business credit card.
Interest rates on credit cards can be very high, so this is often not a long-term financing solution. But if you need breathing room or a way to plug a cash flow gap, using a business credit card covers costs while racking up points and rewards.
Some elite business credit cards come with 0% introductory APR periods. With these, you won’t pay interest on your purchases for a certain amount of time—typically 12 months. This means you’ll have access to a 0% interest loan (as long as you make minimum payments and follow other requirements) for the life of your offer. That’s an unbeatable and helpful tool to have in your pocket in times of crisis.
We aren’t out of the woods yet when it comes to this pandemic. Finding an affordable option for financing your small business could be crucial to your long-term survival or growth. Explore the above options to see what might work best for you.
Eric Goldschein is the partnerships editor at Fundera, a marketplace for small business financial solutions. He has nearly a decade of experience in digital media and has written for outlets including Business Insider, Startup Nation, BigCommerce, Square, HostGator, and Keap, covering finance, marketing, entrepreneurship, and small business trends.