Creative Strategies for Getting Small Business Loans

These days, banks are very stringent in who they lend money to, and small businesses without collateral or good credit are simply not going to get funded. This doesn't mean you have no options when you want to grow your business or increase working capital, though, but you'll need to get creative if you want to get small business loans today, particularly start up business loans or those for bad credit. Here are some creative strategies that may work or you.

1. Factoring

Factoring is an ancient form of lending that involves selling your accounts receivable to a third party to get immediate payment. While you'll receive money instantly, rather than waiting up to 3 months (or never) to get paid from your customers, it can be expensive. These forms of small business loans are best for businesses that are growing, not those shrinking in size.

2. Turning to Retirement Funds

You might be tempted to borrow money from your 401(k) or IRA to fund your business. Think about a 60-day interest free loan first, because you won't have to pay fees if you pay back the balance before then. Keep in mind this strategy is very risky and you could be destroying your financial security if you lose the business.

3. Government Grant Options

Depending on where you live and your business type, you may have luck by searching for local, state or federal government grants, such as those through the Department of Commerce or the USDA. Don't forget, though, that these business loans typically have very strict requirements and most have strings attached.

4. Peer-to-Peer Lending

Peer-to-peer lending websites like Lending Club allow you to get funding from people you don't even know. The amount you will pay depends on many factors, including the length of the loan, your credit, your reasons for getting the loan and even the economy as a whole. Despite what you may think, peer-to-peer loans are not necessarily easy to get and the interest rate may be very high.

5. Crowdfunding

Crowdfunding is similar to peer-to-peer lending, although it allows strangers to invest in your business or your idea in exchange for something that isn't money. You don't have to repay this funding, and you may offer your donors something unique like some of your first products if you're after an alternative to start up business loans, or even naming a product after them. Kickstarter is one of the most popular websites that enable crowdfunding, and your ability to take advantage of this option depends on how appealing your idea is.

6. Microfinancing

These bad credit business loans allow you to borrow up to $10,000 and there's many ways to obtain them. Microlenders often provide Small Business Administration loans and many will lend you money even if you have bad credit. Loans will usually be based on your business experience, market opportunities and sales, and this is the best solution if you need to improve cash flow but don't qualify for a bank loan.

7. Supplier Financing

This option allows you to get financing from your supply chain and t works best if you have a smaller supplier who wants your business and is willing to help you out. Just remember not to personally guarantee the loan.

8. Contests

If you're in need of money, why not try winning it? You'll find plenty of regional or national competitions that give away a great deal of mone, such as the MIT $100K Entrepreneur Challenge or the Amazon Web Services Start Up Challenge. To win, you'll need to really put on a show and have an idea that everyone will love.

9. Business incubators

This option is designed for new businesses who want to get seed money or mentorship to get going. Many organizations can help you out, such as Excelerate Labs, but there is a great deal of competition to get into one of these programs.

10. Barter for Services or Products

Finally, consider bartering as an alternative to small business loans. Bartering is how 25% of the trade in the entire world is done, and you can use this to save money, move your unused inventory and find new customers for your business. Just remember to barter selectively, and remember that you can't usually pay your employees or your lease without money.

An Overview of Small Business Administration Loans

If you want to expand your business, or even gain access to start up business loans to start a new one, there's a good chance you'll need a bit of financial help. The Small Business Administration participates in a wide variety of loan programs designed to help you if you have trouble qualifying for a traditional loan from a bank.

Obtaining small business administration loans begins by contacting a lender that participates in small business administration programs, which will offer you an SBA loan application that meets specific requirements to make sure your loan is eligible for a guarantee from the administration. This guarantee means that a portion of your loan will be repaid to the lender by the SBA if you default, which makes these bad credit business loans possible.

Loans for Expanding or Starting a Business

One of the most popular small business administration loans is the basic 7(a) loan program, which offers 7(a) loans to individuals who want to start, expand or acquire a small business. These basic loans are the most widely used and you can apply through a participating lender.

Another option for growing businesses is the certified development company (CDC) 504 loan program, which is a form of long-term financing with a fixed interest rate for large fixed assets like land.

Perhaps the most common type of start up business loans is the microloan program, which is a small loan up to $50,000 for start-up or newly established small businesses. This money from the Small Business Administration is provided to nonprofit community-based lenders who then make loans to eligible borrowers with credit decisions made at a local level.

Veteran Community Loans

Veterans and military members can also take advantage of unique programs offered by the Small Business Administration, including bad credit business loans to establish or grow a business. One program is known as the Patriot Express Pilot Loan Initiative, which offers financial assistance for veterans and military members who want to expand or establish a small business.

The SBA also offers a military reservist economic injury disaster loan, which provides funding for small businesses to meet regular and required operating expenses that could have been met but for an essential employee being called to active duty as a military reservist.

Special Purpose Loan Options

The Small Business Administration also provides a range of special purpose loans, such as CAPLines, which helps small business owners meet short-term, cyclical working capital needs, and the pollution control loan, which offers funding for the planning, design and installation of a pollution control facility.

Finally, a unique loan through the SBA is the U.S. Community Adjustment and Investment Program (CAIP), which is designed to help businesses operating in areas of the U.S. that have been hurt by the North American Free Trade Agreement (NAFTA), which is indicated by job losses and a high unemployment rate in the county.

7 Small Business Alternative Funding Options

As the economy slowly improves, the small business credit market continues to evolve. Large banks still have low approval rates for their loans, but small banks are filling in the void and approving over half of the business loan applications they receive.

Alternative lenders still fill gaps for small businesses as well as entrepreneurs seeking start up or expansion capital, granting start up business loans and business loans for bad credit. Despite improvements, most small business owners know that walking into a large bank for an easy loan is a thing of the past, but there are still options.

1. Purchase Order Financing

Purchase order financing has become always been popular. These small business loans involve a third-party finance company, which pays the factory to manufacture goods for the small business. When the financier is paid, it receives a commission and delivers the goods to the business.

2. Peer-to-Peer Lending

This is a fairly new form of the microloan. Instead of turning to a bank or credit union sponsored by a microloan program, business owners can turn to peers for smaller, short-term loans. Online lending clubs will assess the business' risk using the same type of credit scoring a bank would use, but individual investors may choose to participate in a high risk loan for a higher return on investment. Investor risk is limited by pooling numerous contributions, sometimes as low as $50, and borrowers repay the loan through the website.

3. Cash Advance Loans

These business loans for bad credit are not start up business loans, but are instead available to established businesses. Small businesses can obtain funding quickly and pay it back over time in installments that come right out of future sales.

4. Crowdfunding

Crowdfunding is actually a type of investment that allows almost anyone to participate, even in small amounts, and businesses gain access to a diverse number of opportunities. This option is especially popular with entrepreneurs, but it requires a unique or interesting business idea that people can get behind.

5. Cash Flow Financing

These small business loans are for established businesses with bad credit. Rather than a credit-based loan, an alternative lender uses the expected cash flow of the business to provide money for expansion or other needs.

6. Factoring

Factoring is definitely one of the most popular alternative small business loans, as it allows owners to tie repayment of the loan right into business receivables. Factoring lets small businesses draw money from outstanding invoices and, instead of working with a bank, they apply to a firm called a factor. Restaurants and other service businesses may participate by running credit card transactions through the factor's merchant terminal. The factor will receive a share of the money and deposit the rest into the business bank account.

7. Microlending

Finally, many cities and areas have created a lot of small business growth by sponsoring microlending programs. Microloans are usually smaller than regular small business administration loans, and most businesses that apply do not qualify for a corporate credit card due to lack of business credit history or a high-risk location.