It’s the ultimate kick-in-the-gut for an entrepreneur: Your bank says your loan doesn’t fit its lending criteria anymore. It won’t renew your line of credit. Or, it changes its services or lending terms in a way that makes it unattractive for you to continue doing business there.
In these days of financial-industry turmoil, getting the brush-off from a bank can happen, even if you run a multimillion-dollar business that has been loyal to one institution for years. If your loan isn’t profitable, your longstanding relationship may not be enough incentive for the bank to hold onto your business.
“This is not a time when many small businesses and entrepreneurs are feeling the love from their banks,” says attorney Andrew Sherman, a partner in the Washington, D.C. office of Jones Day and the author of books such as Raising Capital and the new release Harvesting Intangible Assets.
Big banks aren’t the only place to turn for financing. If you’re willing to think creatively, there are plenty of other sources of capital. (To compare the costs of various deals, use this Yahoo calculator.)
Your credit union
Credit unions have come a long way since they primarily served employees of a single company or industry, says Sherman. “Just because it has a name like the Farmer’s Credit Union, you don’t have to be a farmer to join.”
Some credit unions are branching out into small-business lending or stepping up their lending in this area. They may view your loan application with a friendlier eye than a mega-bank would. In Biz2Credit’s November index, the rate of loan approvals by credit unions in the company’s network was 57 percent, compared to 10 percent by big banks.
A community bank
Small community banks may not have the brand-name draw of the banking giants, but many will be more eager for your business. In the Biz2Credit Small Business Lending Index for November 2011, community banks approved 47 percent of loan applications. That’s a lot better than the 1-in-10 ratio of loans that their big bank counterparts approved.
Peer-to-peer lending sites
For small loans, check out sites such as Prosper and Lending Club, the two largest U.S. players in this field. The two sites issued a combined $37.4 million in loans in November, according to the industry publication P2P Lending News. Lending Club’s interest rates on business loans start at 6.78 percent. Prosper loans start at 6.59 percent. Interest rates depend on your credit history.
If you’re facing cash-flow challenges but need to make an urgent purchase, such as a computer, look into the financing options your vendor provides.
“Many companies in recessionary times are more aggressive in wanting to sell products and services and are willing to provide vendor financing,” says Sherman.
You may be able to lease equipment and machinery at far more favorable rates than a bank offers.
Crowdsourced funding sites
These sites can be ideal sources of small amounts of financing for businesses that have an avid fan base, such as popular restaurants, or for those who are working on creative projects, like artists and musicians, says Sherman. Kickstarter and other such sites enable fans to make small donations which, collectively, can add up.
And now for some good news.
The bank-lending picture seems to be improving since the darkest days of the credit crisis. The Biz2Credit Small Business Lending Index found that loan-approval rates by both big banks and smaller lenders are rising.
Elaine Pofeldt is an independent journalist specializing in entrepreneurship whose work has appeared in TheAtlantic.com, BNET, Crain’s New York Business, CBS Moneywatch, Good Housekeeping, Working Mother and many other publications. A former senior editor of Fortune Small Business magazine and editor of its website, she does editorial consulting for online and print publications.