That makes good sense, given the relationship you may already have with them, and their knowledge of your goals and operation.
When you do so, you may well hear about not only the bank’s own loan options, but some they offer in conjunction with the federal Small Business Administration (SBA).
If they don’t come up, ask about them. Interest rates on loans made with the SBA are often (though not always) lower than those traditional banks offer. Additionally, the government backs SBA loans, which can lead to credit standards that are a little more lenient.
Here are a few specific SBA loans to consider:
The Microloan Program
This program offer a flexible solution that suits the needs of many small--even very small-- businesses. The average loan amount is $13,000, but the programs allows for loans of up to $50,000. The cash can go towards inventory, equipment, supplies or working capital. Additionally, the repayment term has a maximum of six years, a relatively generous timeline.
Essentially, the SBA loans funds to a non-profit lender who then loans to small businesses. Seeking a microloan means contacting one of these intermediaries within your state and region. The SBA provides a list here.
Many of these microlenders engage with their surrounding community, and may also provide helpful free consulting and training. But a key drawback to these loans are their interest rates. Those currently range from 8 to 13 %, depending on the intermediary, which is a relatively high range. You may, therefore, need to shop around before you find an affordable option.
The CDC/504 Program
The name isn’t exactly catchy, but the benefits to this program can be compelling, especially if you’re seeking capital to expand your business--say through purchases of machinery or commercial real estate. Loan amounts can reach as high as $5.5 million and are granted based on “how funds will be used based on which goal they support,” according to the SBA.
Interest rates with the program are lower than with many bank loans; they’re typically slightly above the current rate for 5-year and 10-year U.S. Treasury issues. The SBA charges a fee of 3% of the principal, which comes directly from the loan. Terms range from 10 to 20 years, which allows borrowers ample breathing room to expand their businesses.
If the loan is approved, SBA will loan $65,000 for each job created or retained as a result of the financing. However, the program requires you to link the loan not only to job creation but to certain public policy goals, including rural development, business district revitalization, expansion of minority business development and more. Making your case can demand a good deal of effort, including lot of paperwork.
Collateral is also required, although the assets being financed are often accepted to satisfy this stipulation. This benefit makes the CDC/504 program a powerful tool for businesses in need of greater capacity to manage growth.
The Disaster Loan Program
Banks can be notoriously averse to helping businesses that have been crippled by a storm or other disaster, since those can reduce the ability to repay the funds.
The SBA’s Disaster Loan program offers financing to help enterprises of all sizes recover from the after-effects of natural events or other calamities. A wide array of impacts are covered, from damage to buildings, property, and machinery through losses of inventory to reduced revenue from company inactivity after the disaster.
The maximum loan amount is $2 million. Interest rates are capped at an attractive 4%, and repayment terms are as long as 30 years. (If the business has credit available elsewhere, the interest rate is instead capped at 8%.) These lenient parameters are designed to give the borrower the resources and time to get back on their feet without crippling costs.
The SBA aims to administer disaster loans rapidly, within two to three weeks, they claim--far faster than with most of their loan programs. You need not wait for an insurance settlement to come through to apply, although any eventual proceeds that duplicate impacts covered by the SBA loan must be applied against that loan.