Small Businesses Alternatives To PPP Loans
Small business entrepreneurs have multiple competitive options for accessing funding when the economy recovers.
As the economy bounces back and the U.S. transitions out of the pandemic, small-business owners will need access to capital to both recover and grow. However, since federal relief from the Paycheck Protection Program ended on May 31, business owners may be wondering where to get financing or looking for new options after an unsatisfactory PPP experience with a particular lender.
The ideal funding source will always be determined by a company’s specific needs, credentials, and industry, among other things. Here are four possibilities to think about.
Community and regional banks
Small banks are known for their low interest rates, long durations, and large loan amounts, as well as customized service and quick decision-making. Their technology, on the other hand, has fallen behind that of other lenders. Nonetheless, bank small-business loans are still tough to obtain; applicants must have outstanding credit and solid financials.
While both big and small banks have been gradually increasing loan approval rates throughout 2021, Biz2Credit’s Small Business Lending Index report shows that they are still far from pre-pandemic levels — small banks approved 50.3 percent of small-business loan applications in February 2020, compared to only 18.9% in June 2021.
Small Business Administration
Standard SBA loans, such as the 7(a) loan, will continue to be effective funding options for small businesses even after the PPP program has ceased. SBA loans, like bank loans, can be difficult to obtain, but they come with long periods and low interest rates. The SBA enhanced the guarantee on 7(a) loans and waived ordinary loan fees in December 2020 to benefit small firms and encourage lenders to offer funding.
Although banks have made some technological advancements, online business loans can still provide a faster application and funding process. Despite the fact that banks typically have lower interest rates than online lenders business owners may be prepared to pay a little more for a more efficient service.
Fintech financing will approach pre-pandemic levels within the next three years, according to a forecast released by S&P Global Market Intelligence in February 2021. Small- and medium-sized business lenders, in particular, are forecast to boost loan originations by 16.2% by 2024, totaling $15.8 billion. Online lenders are also more likely to lend to start-up companies or those with fair or poor credit.
CDFIs and non-profit lenders
Nonprofit lenders and community development finance institutions, or CDFIs, can be excellent providers of low-cost credit, particularly for smaller loans. These mission-driven organizations are also excellent choices for underprivileged businesses, such as women- and minority-owned businesses.
CDFIs have launched low-interest lending programs to support business owners who were left behind by the PPP program during the pandemic.
The Southern Opportunity and Resilience Fund, for example, provides loans of up to $100,000 to help businesses get through the current crisis. However, capital isn’t the main objective of these initiatives. These programs also provide the support and mentoring that firms require in order to progress to other sorts of finance.
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