As stock markets have continued a years-long run of growth through 2017 and into 2018, small business investment remains strong throughout the United States. This stable economy has been a boon for the Small Business Administration’s lending programs, which continue to provide financial support to a variety of businesses across the country.
In the 2017 fiscal year, the Small Business Administration reported the approval of more than 68,000 loans in its 7(a) and 504 loan programs, which comprise the bulk of its lending activity. In total, these loans totaled more than $30 billion in support for small businesses.
This year marked the 65th anniversary of the SBA. For entrepreneurs, it’s a great time to seek out small business financing. Trends throughout 2018 have revealed some unique opportunities worth exploring if you’re in the market for a small business loan to give your new venture a boost. In particular, SBA loan activity is seeing growth in involvement from small, local banks, as well as the growing popularity of what are referred to as microloans.
The growing role of big banks
In the past, small business lending has been primarily the domain of smaller, local banks that depend on SBA loans for a larger portion of their revenues. Big banks, meanwhile, have found it more profitable to stick to corporate clients, and they’ve typically limited their involvement in small business lending.
But we’re starting to see that change. According to The Washington Post, SBA lending from big banks accounted for 25 percent of all loans approved in 2017, a record number.
Not only do larger banks see value in funding a small business sector that figures to be a likely driver of continued economic growth, but the layer of insurance afforded SBA loans makes them a less risky loan than alternative lending products.
Jump-starting business through microloans
While 7(a) and 504 loans represent the bulk of SBA lending, more and more startups and entrepreneurs are seeking financial support through microloans. These loans are smaller than traditional SBA financing, with a maximum lending amount of $50,000. But they can be a great option for businesses needing a smaller amount of financial support—especially when the company has a limited credit history.
Microloans typically offer higher interest rates than other small business loans, but the benefit is that there are fewer requirements to qualify for this form of financing. Businesses can use this to buy equipment, purchase furniture and other office supplies, or simply provide a financial security blanket to help a new business absorb unexpected costs.
Microloans can be acquired through a combination of credit approval, personal guarantees from co-signers, or collateral to cover the loan amount in the event of a default. These are becoming a sought-after form of business funding for startups and other businesses with limited overhead, or for companies that a little more runway to get their company off the ground.
Relaxed equity requirements
In 2018, the SBA loan program has changed some of its requirements to make financing easier to acquire. Previously, financing for acquisition loans under $500,000 required a 20 percent seller note/buyer equity in place in the event of a loan default, and at least 25 percent for deals over $500,000 in value.
But this year, according to Inc., the SBA lowered those rates to 10 percent across the board, with a minimum of five percent equity in cash. This will drastically support entrepreneurs in their efforts to build and grow businesses compared to the program’s previous policy.
Comparing alternative lenders
While recent trends have made SBA loans more accessible to businesses, one enduring challenge is the time it takes to get approved: Businesses might wait months before their financing reaches their bank account. There’s also the application process itself to consider, since in many cases, business owners will need to complete lengthy paperwork and submit a thick collection of documents in order to be considered for a loan, all of which can take hours, days, or even longer to assemble.
In cases where your business needs faster access to funds, you’re probably better off working with alternative lenders that offer faster loan approvals. The proliferation of fintech firms offering more small business funding options has made this easier than ever. Fundbox, for example, offers a fast online registration process without any paperwork to get started. If you’re approved, you can get access to business funding in less time than it would take to complete a traditional loan application. If you’re seeking funds for a time-sensitive situation or business opportunity, this is an option you should consider.