When you are starting your small business, you have a need for more funds in the initial phases. Initial startup costs include business licenses, leases for office or industrial space, furnishings and equipment and expenditures for advertising campaigns.
The problem is that we have experienced times in this country when small business loans were tight or non-existent.
The Washington Post reported that the banks became very conservative in their lending during the worst throes of the Great Recession. This basically meant that lending to small businesses was scant at best during those years.
Today, we are told that the economy is heading towards another recession. That makes sense, considering the Federal Reserve has had to keep lowering the interest rate on loans and pumping money into banks in the Repo market to avert a liquidity crisis. These economic indicators should be a clarion call to small business owners to find the very best lenders who will still be there when the recession begins to hit their sector and locale.
In order to find the best sources of small business loans, we spoke to Rex Burgdorfer. Burgdorfer is the managing director for the investment banking firm, Juniper Advisory. Juniper Advisory specializes in mergers and acquisitions in the nonprofit healthcare system.
Burgdorfer has also worked for Morgan Stanley and has an MBA from the Kellogg School of Management at Northwestern. Burgdorfer also is an angel investor on the investment committee of Purple Arch Ventures. There is more information on the Rex Burgdorfer Crunchbase biography which has a link to the Rex Burgdorfer Twitter feed, for those who would like to keep up with Burgdorfer’s work.
Types of Business Loans
Business Credit Cards
One of the major ways in which small business owners tried to fund their enterprises during the Great Recession was to tap into their business credit cards. Burgdorfer advises against this because the average interest rate on business credit cards has been only about 2 percent lower than the high-interest consumer credit cards that currently have an average rate of around 21 percent.
At such high rates, businesses are mostly strapped for cash because they are busy servicing such high interest rates.
Nerdwallet provided some other small business loan options that include:
Term Loans: A lump sum for a specified period of time. Approval is often in days, but you may need to personally guarantee the loan or provide collateral.
Small Business Administration Loans: SBA loans have very low interest rates but are very slow and tough to gain approval.
Business Line of Credit: If you have stellar revenue and a top business credit score, a business line of credit will provide you interest-only payments on this unsecured loan.
Equipment Loans: Equipment loans require great credit scores and possibly a down payment.
Invoice Factoring or Financing: Although each is a bit different, invoice factoring and financing will pay you for your 30- to 60-day invoices today.
Merchant Cash Advances: Merchant cash advances require you pay the loan with a percentage of your proceeds. The loan costs can be very high.
Personal Loans: If your personal credit is strong, you can qualify for a personal loan to fund your business but risk harming your personal credit or being sued if you default.
Microloans: Microloans are smaller loans offered by nonprofits and lenders who have a philanthropic purpose. The loans have low interest rates and come with small business advisement.
Angel Investors: According to The Balance Small Business, angel investors are either individuals or groups of wealthy investors who will ask for a stake in the equity of your business and some control in the enterprise. You will need a bullet-proof business plan and a great pitch.
According to Rex Burgdorfer, there is not a one-size-fits-all best small business loan. It depends upon how much control you want to exercise over your business, how quickly you need the funds and what the funds will be used for. If you are interested in angel financing, you need can contact Burgdorfer through the Rex Burgdorfer Crunchbase page or through the Rex Burgdorfer Twitter feed
