Rising interest rates, bank consolidation and the recent demise of the SBA's popular LowDoc loan program are making it tougher for entrepreneurs to find financing.
Rising interest rates, bank consolidation and the recent demise of the SBA's popular LowDoc loan program are making it tougher for entrepreneurs to find financing. Here are three tips.
Think home equity
Putting your home on the line may sound risky, but it is often the easiest way to get tens of thousands of dollars. There's minimal paperwork and, with Florida's hot home market, often plenty of equity available. A home equity loan makes more sense in light of an SBA loan requirement that if the borrower has 20% equity in his or her home, it must be used as collateral for an SBA loan. So in many cases, the entrepreneur's home would be pledged anyway to get the SBA loan, which requires more paperwork and often higher fees.
Look for an investor
There are no listings and few databases for private investors, but Jim Parrish, a financial counselor with the University of South Florida Small Business Development Center, recommends talking with friends and business associates, industry insiders in your specific field and "true believers" in what you are doing. As an example, he says someone starting an environmental business might join the Sierra Club to meet and mingle with like-minded people with money. "There's a huge opportunity here," he says.
Go beyond banks
Some credit unions are starting to do SBA lending. SBA loans at any institution, however, are not as easy to obtain now. Borrowers must use SBAExpress or traditional 7(a) loans. The problem is that the 7(a) loan process is time-consuming and pricey. SBAExpress loans, which have a government guarantee for only 50% of the loan, are only offered at a limited number of financial institutions.