Where can I find financing for my small business? The answer is dependent on many factors including: the type and size of your business, credit and financial history, funding needs, and any collateral you have, as well as, your experience and business expertise.
Banks are lending – the 2013 budget for SBA loans for small businesses is increasing to $26 billion. However, the way banks are lending to small businesses has changed significantly since the economic downturn began in 2008.
The housing market crash in 2007-2008, left many small businesses with multiple challenges, including how to acquire capital from financial institutions. Bank lending for small businesses decreased significantly more than that for larger businesses. Between 2008 and 2011, bank lending for small businesses decreased by 18% while that of all other firms decreased by 9%.
The growth rate of small business loans from banks that were given Trouble Assets Relief Program (TARP) funds was slower than for non-TARP banks. TARP was implemented to encourage lending especially to small businesses, however; small business loans from TARP banks only grew by 7%, while loans from non-TARP banks grew by 8.4%. There is a direct correlation between the size of the bank and business lending; the bigger the bank, the less likely they are to lend to small businesses.
Contrary to the arguments made by the banking industry, the analysis showed that there exists a positive relationship between a bank’s level of capitalization and the rate of business lending. What this means is that as the capital standard of banks increase, so does their availability of credit to small businesses. There is a positive relationship between de novo banks (less than 5 years old) and business lending. The newer the bank, the more likely they are to lend to small businesses.
2013 SBA Funding is increasing to $26 billion in loan guarantees which represent another opportunity for small businesses to receive crucial funding. The Small Business Investment Company (SBIC) program will provide up to $4 billion in guaranteed lending to enable SBICs to invest in high-growth small businesses, through expanded funding authorities. The SBA Budget provides $349 million in subsidies for SBA’s 7(a) and 504 business loan programs. This funding supports $16 billion in 7(a) loan guarantees, (including $2 billion in revolving lines of credit that support $46 billion in total economic activity) which help small businesses operate and expand, as well as $6 billion in guaranteed lending under the 504 program to finance small businesses’ commercial real estate development and heavy machinery purchases. To learn more about SBA loans and find one that fits your business, visit the SBA’s Loans & Grants page.
Alternative funding options, such as crowd funding, have been very popular in the entrepreneurial community. Crowd funding can be an opportunity for entrepreneurs to find financing through non-traditional means; however, its future is cloudy. Legislation regarding the regulation of crowd funding is coming this year and it that may have a huge impact as to whether it continues to be a source of financing for start-ups.