Finding Small Business Funding During a Slow Economy


Finding small business funding during a slow economy can be a challenging prospect. You may have banks tell you that they're reserving loans for existing customers, or they may have told you they've stopped lending altogether. These are common occurrences for a slow economy, such as the one we're in now, when banks ten do increase restrictions and tighten their lending policies.  

If you're a business owner trying to find funding in a slow economy you should do the following things:

Know Your Local Market

Take time to make a list of the local lenders like savings and loans, credit unions, and neighborhood banks. These are typically the places that will offer loans to local businesses, and may not have as strict guidelines as the larger commercial lenders. You can find a list of local lenders through your local library, a commercial loan broker, or by simply walking into any retail bank branch and asking to meet with the business loan manager. Rates will vary from bank to bank, so make sure you keep track of loan programs and options from each lender and don't be afraid to negotiate for the best terms.

Government Agencies

Certain agencies were created to help entrepreneurs start and operate small businesses. In slow economies, they are often the only source of steady and reliable financing.  

The first and most used source is the Small Business Administration (SBA). The SBA offers everything from microloans of $5,000 - $35,000 for startups to $2,000,000 for real estate collateralized business ventures. They also offer loans to businesses that may have been affected by a natural disaster.

Asset Based Loans

If you're lacking in credit and revenue, but you have collateral that holds some value you may be eligible for an asset based loan through a hard money lender. These loans are usually limited to 50% of the collateral's value and they are made at high interest rates in the 12-15% range.

Find an Angel

Angels are investors who infuse cash into companies for a share of ownership and/or profits of the company. In some cases, businesses choose to forego loans and start with angel capital. Others look at this funding source as a last option because they lose some control over the company they've started. Angel investors can be found for every field of business, and their terms vary wildly. Some make pure equity investments. This means that if the business fails they lose their investment and have no means of recourse. Others offer grants or loans that have to be paid back with interest. Angel investors are harder to find, and may not even exist in your local market. The best way to find them is to start with an internet search for angels in your area or for companies that have received their funding from angels.

Get your documents together

Regardless of where you apply, lenders will require certain forms of documentation.  This can include:

  • Business Plan

  • Loan Request

  • Business Financial Statements including profit and loss statement, balance sheet, and tax returns for previous two years

  • Personal Financial Statement of owners holding 20% of the business stock or more

  • Accounts Receivable and Accounts Payable reports

  • Press clippings or references from customers and suppliers

Having these documents together ahead of time will reduce underwriting timelines and provide for quicker funding once loan applications have been made.