Key Takeaways
- Small business loans through traditional banks have become less accessible and affordable
- Some financial institutions are introducing AI into their lending processes, making small business lending more efficient and less expensive
- Small business owners should apply for funding proactively rather than waiting until their need for capital is dire
- When searching for a loan, entrepreneurs should research interest rates, repayment term lengths, down payment requirements, collateral requirements, and how the actual loan processing will be conducted in order to make the best decision for their business
Searching for funding that works for your business is no small feat, and not all funding is created equal.
A market saturated with a variety of loan types and providers means discerning the best option for your business requires time and careful consideration.
If you’re strategic about your business funding then managing your repayment and balancing your books should not be overly taxing on your cash flow.
A market saturated with a variety of loan types and providers means discerning the best option for your business requires time and careful consideration.
If you’re strategic about your business funding then managing your repayment and balancing your books should not be overly taxing on your cash flow.
Small Business Loans Through a Traditional Bank
Over the last decade, banks have begun moving away from providing small business funding. Due to the high failure rate of small businesses, banks are less partial to assuming the risk of funding small businesses.
Additionally, small businesses are often seeking less than $500k in funding. These loans are considered “small balance” and the cost of processing them often does not outweigh their profit for banks.
Many banks are still using traditional, manual processes to approve, underwrite, and fund loans.
If a small business is approved for funding through a bank, getting the funding takes time and qualification requirements will be stricter due to the high-risk status of small business lending.
Additionally, small businesses are often seeking less than $500k in funding. These loans are considered “small balance” and the cost of processing them often does not outweigh their profit for banks.
Many banks are still using traditional, manual processes to approve, underwrite, and fund loans.
If a small business is approved for funding through a bank, getting the funding takes time and qualification requirements will be stricter due to the high-risk status of small business lending.
What Are Some Alternatives To Traditional Bank Loans?
Third-party companies are continuously working to simplify the small business funding process, making capital more accessible and affordable to a wider range of small businesses.
The introduction of AI into small business lending is one way these companies are increasing the efficiency with which they can process loans, therefore saving time and money for the borrower.
But how do you choose a loan that’s right for you?
The introduction of AI into small business lending is one way these companies are increasing the efficiency with which they can process loans, therefore saving time and money for the borrower.
But how do you choose a loan that’s right for you?
Finding The Loan That's Right For You
For many small businesses, anticipating what your finances will look like 6 months from now is merely a guessing game.
Factoring in economic fluctuations, a fickle and ever-changing consumer market, and turbulent government policy changes, slow seasons are increasingly more difficult to predict and prepare for.
Many small businesses will wait to apply for funding until they need it.
We don’t recommend this strategy.
Our team has worked with many small business owners who have fallen into the trap of predatory small business loans that offer “fast funding”, but come with hidden fees, astronomical interest rates, and extremely short repayment plans.
Factoring in economic fluctuations, a fickle and ever-changing consumer market, and turbulent government policy changes, slow seasons are increasingly more difficult to predict and prepare for.
Many small businesses will wait to apply for funding until they need it.
We don’t recommend this strategy.
Our team has worked with many small business owners who have fallen into the trap of predatory small business loans that offer “fast funding”, but come with hidden fees, astronomical interest rates, and extremely short repayment plans.
When it comes to securing capital, small business owners should consider:
- Competitiveness of interest rates Consider whether a fixed or variable rate is better for you. Additionally, understand the base rate being used by providers and what that means for your repayment.
- Length of repayment term Understand the tradeoff— longer terms reduce monthly payments and ease cash flow, but increase total interest paid overtime. Ask about payment frequency (monthly vs. weekly/daily). More frequent payments can strain cash flow even if the rate looks acceptable.
- Down payments Down payments for loans can vary greatly— ensure you’re aware of the cash you’ll be expected to pay up-front upon funding.
- Collateral Find out if you’ll be expected to provide a list of collateral to back your loan or if your provider may file a lien on your assets.
- Ease of process Be aware of how the application and underwriting process will be conducted, whether the process is online or your physical presence will be required for any part of the process.
While you should not sacrifice the above criteria for speed, finding a provider that can offer you favorable terms while keeping the process efficient is most ideal.
Interested In Finding Out How Much You Could Qualify For?
Small business loans through NEWITY offer competitive interest rates, 10-year repayment terms, and no down payments, all while providing friendly and efficient customer service so you can receive funding 3x faster than the national average without sacrificing beneficial loan terms.
Find out how much you could qualify for today!
