How to Really Get a Small Business Loan in Today's Economy

By Rieva Lesonsky - Meet the Expert

“It’s impossible to get a small business loan these days.” So goes the conventional wisdom in the small business world, right? But according to the latest Thomson Reuters/PayNet Small Business Lending Index, small business lending was actually up in 2011. In other words, plenty of small business owners are getting loans. What do you need to know to be one of them?

First, know what to expect when you go looking for a loan. For example, if you’re a startup, it will be harder to get a loan than if you own a going business. That’s always been the case, and the current economy is no different. However, SBA guaranteed loans can be a better bet than commercial loans for startup businesses. And 2011 was a record year for SBA guaranteed loans, which bounced back to pre-recession levels of more than 60,000 small businesses served with more than $30 billion in loans.

The Small Business Jobs Act temporarily raised loan guarantees to 90 percent and waived the fees for some SBA loans, making them more attractive to banks. In 2011, the SBA also added two streamlined loan programs, Community Advantage and Small Loan Advantage, and expanded the small business line of credit program CAPLines.

Second, consider all your loan options, not just banks. For example, both startup and existing businesses are increasingly turning to credit unions. While federal regulations still restrict the percentage of their assets that credit unions can devote to business lending, there are efforts underway in Congress to change that. And despite the restrictions, FDIC data from mid-2011 showed that credit unions were more active than banks in making loans of under $100,000—so if you need a smaller loan, a credit union could be the way to go.

Another financing option to consider is equipment leasing. If you’re seeking equipment to start or expand your business, leasing equipment (instead of getting a loan to buy it) cuts your upfront costs considerably and conserves valuable cash. You also avoid investing in ownership of equipment that could become outdated quickly—which is a big concern in today’s fast-changing business environment.

Finally, take a second look at credit card financing. While experts used to warn against this form of financing as too risky, more and more entrepreneurs are turning to credit cards to start or expand businesses. The key is to keep the credit card debt manageable and pay it off regularly to avoid getting in over your head or facing costly penalties.

 Whichever source of financing you are considering, the keys to success are the same:

 - Know how much money you need, what you plan to use it for, and what the return on the investment will be.

- Have a way to pay the loan back and be able to prove this to lenders. Because lenders’ main concern is repayment, collateral is still king, so look wherever you can for sources of collateral you can use.

- Match the financing source with the purpose. In other words, match short-term financing (like credit cards) with short-term needs (like payroll) and long-term financing with long-term needs.

Whether or not you obtain the small business loan you’re seeking, know that things change fast in business today, and that includes your financing needs and options. Review your business debt at least once a year and investigate what types of financing you are eligible for. Your needs, and choices, a year from now won’t be the same as they are today.

Rieva Lesonsky is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Follow Rieva at Twitter.com/Rieva and visit her blog at SmallBizDaily.com. Visit her website SmallBizTrendCast to get the scoop on business trends and sign up for Rieva’s free TrendCast reports.