Loans / Lines of Credit & Alternative Sources of both
There are MANY sources of loans and lines of credit for small businesses. We have listed several options to consider, and have checklists to prepare your approach to a lender to put forth a great first impression. Most lenders consider the “6 C’s” of lending which are:
- Character: do the 20% or more owners pay bills, undertake good business practices?
- Capacity: will the business generate enough cash flow to repay the loan?
- Capital: will the business have enough working capital, with the loan, to be successful?
- Collateral: what is available to offer to help the lender recover their loss if the loan is not repaid?
- Conditions: is the business good NOW, in the industry it serves, at this time and place in the economy?
- Credit score: 20% or more owners must meet certain credit score minimums, depending on the lender.
Concerned about any of the above? There may be viable options, such as co-signers, alternative lenders, CDFIs, SBA-backed loans, and more.
Micro-loans can typically be found via municipalities, community organizations, or banks. Microloans are most commonly known as loans under $100,000. Terms and interest rates vary. Please speak to our office or your municipality for more information about what is available in your area. Community Investment Collaborative offers a microloan up to $35,000.
Traditional banks loans can range from micro-loans to millions of dollars. There are many excellent, experienced bankers in Central Virginia who serve small businesses throughout their growth. We recommend getting to know them early.
SBA (Small Business Administration) loans are often available to small business that have difficulty accessing loans elsewhere, ranging from $500 to $5.5M. Eligibility requirements include doing business in the United States, being a small business, having invested owner equity in the business, and having experienced difficulty finding loans elsewhere. These loans are available through banks and financial entities that are approved SBA lenders.
Some common SBA loans include:
- 504 loan (often used for real estate or equipment)
- 7(a) loans are the most widely utilized with several programs including those for exporters and veterans
- Disaster Loans
Virginia Small Business Finance Authority considers small loans to businesses that have been in business for at least 2 years, minimum credit score of 650 for owners/guarantors. Maximum term is 4 years, and interest rates are no more than prime + 3% with a maximum loan of $10,000 with exceptions up to $25,000 if SBDC technical assistance has been or is being provided.
CDFIs which, are Community Development Financial Institutions, are a potential source of capital for those who may not qualify for a traditional bank loan. They are private-sector loan centers that offer financing for small businesses in areas of special interest, such as within low- and moderate-income communities. Six that serve Virginia can be found here.
Alternative Lenders can provide capital in many forms and come with a wide variety of options. Example sources include:
- Cash Flow Advance, ACH or Bank Statement Advance (typically 9-24 months with 1.8-1.5% discount factors)
- Factoring or Accounts Receivable Financing (typically for >90 day A/R)
- Asset Based Loans
- Equipment Leasing/Financing
- Crowd Funding (rewards or equity-based)
We encourage you to visit with one of our financial advisors to navigate which options are best for your business.