business financing
sad man in stress with piggy bank bad financial situation

By Rieva Lesonsky

Heading into fall, small business owners are feeling optimistic about their companies’ growth prospects, reports the latest CAN Capital Small Business Health Index. Almost two-thirds (64 percent) of entrepreneurs in the survey are confident their companies will grow in the next year.

That’s the good news. The bad news is that more than four out of 10 entrepreneurs in the survey (42 percent) say it’s quite challenging or extremely challenging to get business financing for the working capital they need to carry out their growth plans. One reason it’s so challenging is that most small businesses seeking working capital are looking for small amounts of money—smaller than many banks are willing to lend. Some 66 percent of small business owners seek amounts of $50,000 or under when looking funding. For banks, the profit that can be made from such small loans is often cost-prohibitive when you consider the time it takes to assess and underwrite them.

If you’re in need of a smaller amount of financing, where can you turn? Banks can still be an option—some 28 percent of entrepreneurs in the study got financing there. But if the bank says no, here are some other options to consider:

  1. Friends and family: A source for more than two in 10 entrepreneurs who want financing, friends and family have several advantages: They know you and trust you, so they’re likely to offer better terms than third-party lenders, as well as more flexibility if you run into problems and need more time to pay back the loan. However, it’s important not to take advantage of friends and family lenders. Always draw up loan papers, make sure the lender can afford to make the loan and be sure to pay the person back in full. It’s not worth putting your family ties or friendship at risk to get a loan
  1. Credit cards: One-fourth of small business owners surveyed have used credit cards to access growth capital. Provided you use them correctly, credit cards can be a smart option. First, make sure you use a business credit card rather than your personal credit. By doing so, you help build a credit rating for your business and also keep your business and personal finances separate, which is important for tax and legal purposes. Second, make sure you are able to pay off the credit card in a timely fashion so that the cost of the capital is not too great.
  1. SBA Microloans: The Small Business Administration recognizes that in order to achieve their goals, small businesses frequently need smaller amounts of capital than traditional bank loans typically offer. That’s why they started the Microloan program, which offers small loans of up to $50,000 (the average is about $13,000) to help small businesses grow. The loans are made through intermediary lenders—nonprofit community organizations that can often offer expertise in running a business as well as providing loans. Find out more about SBA Microloans.
  1. Online lenders: Working with an online marketplace that matches your business with lenders can be a smart way to go if you aren’t sure where to turn for financing. CAN Capital, Fundera and Kabbage are among the lending marketplaces that offer a range of options from various lenders. (Disclosure: Fundera is a client of my company.) In most cases, you’ll be able to choose from a wider variety of loan products than a traditional bank, you’ll usually get faster approval and there is less paperwork to deal with than a traditional bank loan. On the downside, some of these products have higher costs, fees and interest rates than traditional loans. However, if your business is relatively new without a strong track record, they can be your best bet for getting the financing you need to grow.