lending to small businesses and
are doing less and less of it.
Getting a small business loan is
becomingharder and harder.
In 2009, there was $326 billion in non-
real estate related small business loans.
In 2012, there was only $280 billion in such loans
outstanding, according to a Small Business
Administration (SBA) report.
To be categorized as a small
business loan, the amount of the
loan simply needs to be less than
regardless of the size of the
$1 million dollars,
When the amount of the loan is
dropped to $250,000 or less,
there is only $167 billion in small business loans
outstanding. This is less than 8% of the total
amount of business lending made by banks.
What are your options?
There are four main sources for loans:
•Community Development Financial Institutions (CDFIs)
Each of these sources have different eligibility
requirements, interest rates, and loan sizes, which make
them best suited to certain types of businesses.
CDFI Crowdfunding SBA Loans
less than 2
Yes No No No
Many in the
Up to $5
6-8% 0% 7.5-9.75%
type of loan,
is a non-profit financial
institution funded in part by
the Small Business
Most CDFI loans are for less than $100,000
and many are in the $20,000 range. Interest
rates are generally around 6-8%.
A CDFI will require:
•Fill out a loan application.
•Provide a business plan.
•Sign a personal guarantee.
•In many cases, put up personal collateral
(just like a bank to get a loan).
While a CDFI will only make loans to businesses that
they have a high degree of confidence will be repaid,
they have more flexibility to approve loans and will often
work with the applicant to get their loan approved.
the application process to be a cakewalk.
to provide supporting facts for
the assumptions in your
Like how much you can charge for your product/
service and the potential size of the market for
the process of getting the small business
loan from a CDFI can be rigorous and require
you to put up your home as collateral.
Here is a list of community development financial institutions.
You should first look towards a locally based CDFI, as many are
limited to helping businesses within a certain geography.
If you only need to borrow:
$1,000 to $10,000,
You may want to consider crowdfunding
your loan on a platform such as Kiva Zip.
Crowdfunding means that instead of having a bank lend you the
money, your loan will be funded by many different individuals, who
each lend a small fraction of the total loan amount. As you repay
the loan, these lenders are reimbursed.
Kiva Zip loans
offer two main advantages:
They have very lax eligibility
2) They carry 0% interest
Anyone can apply for a Kiva Zip loan as long as they are 18
years old, have a monthly debt payments-to-income ratio less
than 35% (and no overdue debt), and have an annual
income of less than $200,000.
In order to apply for a Kiva Zip loan,
you must first find a“Trustee”
Who is an individual or organization that you know
personally and is willing to publicly endorse you for a loan.
Trustees are not guarantors and are not financially
liable for your loan in any way.
Once you have a Trustee, you fill out a simple application
form and write a personal story, a business description,
and the purpose of the loan.
To view examples of Kiva Zip borrowers, click here.
SBA loans are loans made by
banks that are backed by the
Small Business Administration.
They are designed for people who may not
have enough collateral for a conventional
bank loan, but the other eligibility
requirements are generally very similar.
One of the major limitations
of SBA loans is that they
cannot be used to start a
There are two main
types of SBA loans
CDC 504 loans
can be used for general
are used to purchase real estate
and generally provide a public
benefit, such as the creation of
You will have to follow these four steps to
apply for an SBA loan:
1. Determine your eligibility
2. Find an SBA-backed bank
3. Assemble your paperwork
4. Fill our your SBA forms
For an in-depth look each of these steps, click here.
For more information, read our
series of SBA articles:
• SBA Loans – The Ultimate Guide
• Patriot Express And Other Special SBA Loans
– The Ultimate Guide
• Live Oak Bank: Straight Answers On SBA
• SBA Loan Interest Rates – Current Rates and
How They Work
• SBA Form 1919 – How To Fill Out And Where
• SBA Form 4 – How To Fill It Out And Where To
• SBA Form 413 – What It Is And How To Fill It
loans to get, but they may also
carry better terms than SBA loans.
These are by far
the most difficult
In general, you will only qualify for a
commercial loan if you have been in business
for at least
And can convince the lender that your
business can generate enough
monthly cash flow to make
To approve your loan, most banks will want
see that you have a debt service coverage
ratio of 1.25 or higher.
Definition of Debt Service Coverage Ratio:
Total Net Cash Income (your annual profits after
subtracting non-cash additions to income,
before income taxes) Divided By Your Debt
Service (the amount of the money you will need
to pay in interest and principal over the year).
To figure out the size of the loan that your
business might qualify for, you can use a
mortgage calculator to figure out the payments.
You should keep in mind that
business loans are generally for
much shorter periods of time than
home loans. Typically, a business
loan will be for 3 to 10 years.
your business does not have
enough positive net income to
take the loan size you want?
comes into play.
your business plan
This is where
You must be able to convince a banker that the loan will put
you in a position to generate more cash flow and income. The
bankers look closely at your business history to see if the
numbers support this assertion.
but they also want to make
sure they can collect in the
First and foremost banks want
to make sure the business has
enough cash Flow,
Other Factors That Go Into Getting A Small
Business Loan Approved:
• The background of the owners (including credit
• The experience of the executives.
• The amount of investment that the owners have put
into the business.
• The amount of personal collateral that the owners
are willing to pledge to secure the loan.
There are a lot of different types of commercial
• Term loans
• Short-term loans
• Operating line/lines-of-
• Revolving lines of credit
• Business acquisition loans
• Debt financing
• Franchise startup loans
• Professional loans
working capital loans
• Startup loans
For a more comprehensive explanation of commercial loans, see article:
Commercial Loans – The Ultimate Guide For Small Business Owners.
You may also be interested in these
• Working Capital: How To Raise
Money For an Existing Business.
• Small Business Loans For Women –
How And Where To Get One.
• Accion: Where To Borrow $10,000
For Your Business.
• Small Business Loans: Are You
Paying Too Much?
For a more comprehensive explanation of
commercial loans, see article: Commercial Loans –
The Ultimate Guide For Small Business Owners.
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