How to Access Credit as a Small Business

“Access to credit” has become a popular concept in the business community and media. It has become the business seminar du jour to attend for business owners, accountants and lawyers and financial planers. But what does it really mean for you and your business? “Access to credit” describes a business owner’s ability to successfully acquire enough financing to survive.
Many stories in the media portray the current lending landscape as a barren wasteland; however, business owners now have more options than ever to access the funds they need to survive, and hopefully, to thrive. Some of the options include:
Commercial Banks
It is true that commercial banks have become more conservative than they were ten years ago, but contrary to what some may say, the commercial banks in the Lehigh Valley and beyond are approving and funding deals.

Underwriting standards have returned to a more traditional model. You may need to have more cash on hand now in order to get your loan request approved. You may not be able to get approved for a loan with a 90% loan-to-value ratio. This is probably for the best, as we have all seen what happens when the worlds of relaxed underwriting and borrower overconfidence collide.
Economic Development Agencies
Nearly every city or region has an economic development agency. These are private corporations set up with the mission of helping the local region’s economy to grow. These agencies offer many loan programs to help small businesses get started.
Private Lenders
Many private individuals will lend money to small businesses as an investment strategy. You can expect more flexibility (read: more relaxed underwriting criteria). You can also expect somewhat higher interest rates and closing costs.
Venture Capital (“VC”)
VC can be the best option for a start up business, especially if the start up has no record of earnings by which a lender can gauge the borrowers’ viability or creditworthiness. VC also can bring in managerial or strategic experience necessary to bring the new company’s products or services to market. You should expect, however, that the VC will require some equity ownership of your company.
Crowd funding
Crowd funding is a recent phenomenon that has grown out of social networking. Crowd funding websites, such as kickstarter.com and microventures.com, post descriptions of lending opportunities and invite the viewer to submit a donation, often in increments as small as the “investor” wishes. On these sites, many users pool their investments together to get the project owner the funds he or she may need.
Microlending
Microlending is a lesser-used – but very effective – way to get small amounts of cash in the hands of the small business owner. This can also be a way of direct philanthropy, in that some microlending websites like kiva.org enable you to contribute money to a worthy project in the developing world – but potentially receive a return on that investment. Through microlending, a small business owner who may need only a couple thousand dollars to launch their business can borrow more efficiently and incur fewer transactional costs.

Funding is out there, and by researching, planning, and developing relationships with potential funders, it can be yours.

This blog post has been prepared and published for informational purposes only. None of its content should be construed as or relied upon as legal advice. Therefore, no one should act or refrain from acting based on its content. The content is not a substitute for competent legal advice. For legal advice or answers to specific questions, please contact one of our attorneys. Information provided by our attorneys should only be considered legal advice after a formal attorney-client relationship has been established with our law firm and you and confirmed in writing by one of our attorneys.“Access to credit” has become a popular concept in the business community and media. It has become the business seminar du jour to attend for business owners, accountants and lawyers and financial planers. But what does it really mean for you and your business? “Access to credit” describes a business owner’s ability to successfully acquire enough financing to survive.

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