The biggest issue for small business owners today...
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The biggest issue for small business owners today...
What’s one of the biggest issues that small business owners face when growing or maintaining their business? Obtaining small business loans (Cue Barrett Strong’s song “Money” ). Money may make our world go around but applying for loans happens to be one of the hardest, and most complicated processes for small business owners to navigate through and in most cases, banks or credible lenders aren’t offering what they need.
According to Brayden McCarthy and Karen Mills’ Harvard study, in the last 20 years, banks have reduced their small business loans from 50% of all loans to 30%. That may not seem like much but when you take into account that small businesses employ over half of the jobs in the private sector and create 2 out of 3 new jobs in the U.S., that means over 120 million people are depending on these small businesses to survive and thrive in an ever growing global economy.
So, where do you turn when you need help? Sadly, many are desperate and are turning to predatory lenders. You may recognize them as those first 20 adds when you look up how to obtain a business loan.
Many predatory loans are the first listings small business owners see when searching for financial options.
What is Predatory lending?
Predatory lenders lure unsuspecting small business owners in with promises of quick, easy loans.
There is no real definition for predatory lending, but in the FDIC 2015 report, the Inspector general labels them as businesses that “imposing unfair and abusive loan terms on borrowers”.
This can include things like:
Extremely high interest rates
High up front fees
High hidden fees
Penalties for early payoff
Include clauses that trade business equity for loans
Many times these unsavory business practices are hidden from their borrowers in “legalese” or long legal documents that the borrower may not understand or be rushed to sign before reading. Sadly, many of our fellow small business owners are desperate for help and all they may see is “easy and quick loans” or “speedy processing” or may not believe there are any other options for funding.
You might think these practices are illegal activities that are currently being turned over by authorities, but sadly, they are actually legal. These types of loans from private companies are unregulated and they have the right to charge any amount of fees, interest or apply other high payout terms, no matter the impact to the business. If the borrower agrees to the terms, they are bound by the contract and sadly, this is the beginning of the end for many small business owners.
But there is hope…
Regulated Small Business Loan programs
There are honest small business financial programs that save the day – Like CDFI Angels
There are predators out there that you must be aware of, but there are some programs out there that are growing in number aimed at helping small business owners and acting like CDFI Guardian Angels.
CDFI stands for Community Development Financial Institution which are institutions that provide credit and financial solutions for underserved markets and populations in the U.S. These are institutions that are certified by the CDFI Fund, at the U.S. Department of the Treasury and are bound by federal rules and guidelines, unlike their predatory competitors. Here are a few options that might be available to you.
Diverse Community Capitol Program
Diverse small business owners in Arkansas. Louisiana, Mississippi and Tennessee can apply for a Wells Fargo Works for Small Business: Diverse Community Capitol Program grant or loan. Through the Hope Enterprise Corporation of Jackson, Miss., women and minority business owners have access to a $2 million dollar grant to help expand their businesses and continue creating job opportunities.
“Unfortunately, access to capital to support underserved people and places has historically been
limited in the Mid South,” said Bill Bynum, CEO of HOPE. “The support from Wells fills an
important void and positions HOPE to create even more opportunities for promising entrepreneurs
who may otherwise be overlooked.”
To find out more about how to apply for these funds, visit www.hope-ec.org or 1-866-321-HOPE.
10,000 Small Businesses
Goldman Sachs is taking what I would call a “holistic approach” to funding, adding in training, mentoring and a small business support team to their financial offerings in their 10,000 small businesses program. Their goal is to develop a network or community of 10,000 business owners that help support one another and teach each other how to grow strong, local businesses.
Through this program, they will provide an 11 session training course, receive a one on one mentoring partner and have access to financial services with guidance on how to best use it to benefit the business. The best part to all of this is – it’s Free!
ACCION
ACCION is a nonprofit investing in organizations around the world to create a more sustainable, thriving economy. One way they do this is through a network of MFIs or microfinancial institutions. They are organizations that have access to small financial products, at sizes that most small business owners need, and at lower interest rates to allow for easier payback. You can find more information about their microloans and other services on their website www.accion.org.
What I need to get started
Now, before you dive right into the applications, it helps to have all of your information together first. Just because they have loan options, doesn’t mean they will give them up for any good idea so, you need to have all your facts pulled together on why you need the loan and your businesses’ financial details to date.
The U.S. Small business Association has a great loan application checklist to help you prepare for those long, detailed applications. Taking time to gather all the necessary items in advance will help you in the long run. Also, having a friend or mentor review your answers to common loan questions can make your responses more polished and sound. Review questions like:
Why are you applying for this loan?
How will the loan funds be used?
How long do you estimate it will take you to pay it back?
What will you need to purchase, and who are you buying it from?
What other business debt do you have, and who are your creditors?
Who are your staff or those that will be handling the management of the funds?
Knowing what to look for and what to avoid when it comes to financial solutions to small business problems can be hard, but don’t give up. Remember to look for regulated financial lenders and don’t be afraid to ask questions and take your time before signing the paperwork. Also, if it seems too good to be true, it probably is so trust your gut feeling and move down to the next option.
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