With PPP Closing, Small Businesses Have These Financing Options

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By Randa Kriss | Nerdwallet

As the economy rebounds and the United States emerges from the pandemic, small business owners will need access to capital to recover and grow. However, since federal paycheck protection program relief ended on May 31, business owners may be wondering where to get financing or looking for new options after an unsatisfactory P3 experience with a particular lender.

“You’re a number at a big bank,” says Carson Lappetito, president of Sunwest Bank, a regional bank headquartered in Irvine, California. “I think most customers have experienced this when they’ve gone through PPP.”

The best source of finance will always depend on a company’s specific needs, qualifications and industry, among other factors. Here are four options to consider.

1. Regional and community banks

Small banks typically offer low interest rates, long-term loans, and high amounts, along with personalized attention and streamlined decision-making. However, their technology has lagged behind other lenders. Lappetito says it’s become less of a problem.

“The biggest change that PPP and the pandemic has had on banks, as well as on bank customers, is that it has advanced the digitization of banking services for more than five years,” Lappetito said.

For example, banks switched to using Docusign – an electronic signature and agreement platform – within weeks, Lappetito says, as they went through the PPP process.

Nonetheless, small business bank loans are still difficult to obtain; business owners will need great credit and strong finances.

Additionally, although banks large and small have slowly increased loan approval rates throughout 2021, the Biz2Credit Small Business Lending Index report shows that they are far from the levels of before the pandemic – in February 2020, small banks approved 50.3% of small business loan applications. , compared to just 18.9% in June 2021.

2. Small business administration

Although the PPP program has expired, standard SBA loans, such as the 7 (a) loan, will continue to be strong financing options for small businesses. Like bank loans, SBA loans can be difficult to obtain, but offer long-term and affordable interest rates.

In December 2020, to help support small businesses and encourage lenders to issue capital, the SBA increased the guarantee on 7 (a) loans and removed standard loan fees. The move “allowed lenders who might have been left on the sidelines during this time to be more active,” said Mike Rozman, CEO and co-founder of BoeFly, a financial marketplace specializing in franchise solutions.

And as the economy recovers, Rozman believes more lenders will remain in the SBA loan market, even if the increased guarantees expire on September 30.

3. Online lenders

Banks have made strides in technological improvements, but online business lending can always come with a faster funding request and experience. While banks can generally offer lower interest rates than online lenders, Rozman says, business owners may be willing to pay a bit more for a more efficient experience.

A February 2021 report released by S&P Global Market Intelligence predicts that fintech lending will exceed pre-pandemic levels over the next three years. Small and medium-sized business lenders, in particular, are expected to increase loan origination by 16.2%, for a projected total of $ 15.8 billion per year by 2024. Online lenders are also generally more willing to lend to new businesses or on fair credit.

4. Non-profit lenders and CDFIs

Nonprofit lenders and community development financial institutions, or CDFIs, can be great sources of affordable finance, especially for small loans. These mission-oriented organizations are also particularly attractive options for underserved businesses, such as women-owned businesses and minority-owned businesses.

Throughout the pandemic, nonprofits and CDFIs have created low-interest loan programs to support business owners left behind by the PPP program, said Luz Urrutia, CEO of PPP. ‘Accion Opportunity Fund, a California-based nonprofit CDFI.

For example, the Southern Opportunity and Resilience Fund offers loans of up to $ 100,000 to help businesses weather the current crisis. But capital is not the only objective of these initiatives. Urrutia says these programs also provide the support and mentoring businesses need to transition to other types of financing.

No matter where you are looking for funding, Urrutia advises caution. Review resources like the Small Business Borrower Bill of Rights and make sure the terms of any loan are clear.

“This is the time the predators come looking for you,” says Urrutia, “and this is the time for you to take some time and do your homework.”

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Randa Kriss writes for NerdWallet. E-mail: rkriss@nerdwallet.com.


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