| By :
Adrianna Noton
The ease with which enterprising individuals can get finance for small business from banks is one of the primary indicators of a strong economy. The combined punch of the subprime mortgage crisis, credit crunch, recession and economic downturn has made it harder for businesses to get loans from banks. Since small businesses represent 99.7% of all employer firms in the US, it is impacting jobs growth severely. But it is still quite possible for new and existing businesses to get the funding they need, when they need it. It's just that the borrower should be prepared to do some extra research to find the right loan program. There are even government programs to help out startups get loans. Businesses can apply for secured term loans with a fixed interest rate for long term needs. They can get unsecured short term loans and lines of credit for temporary needs or working capital. They can get financing for startup costs, expansion, franchises, and purchase of commercial vehicles, real estate and equipment. These secured term loans are usually amortized for periods of 5-7 years. It can be even more in case of real estate or big equipment purchases. Either way, the borrower will be paying a fixed amount per month that goes partly towards interest payments and partly towards the principal amount. Factors like the firm's credit history and the kind of collateral being put up will decide how much amount the borrower can get and at what rate. This is even more important for short-term and temporary financing. It can be a lump-sum amount for purchasing smaller items that can be repaid in 1-3 years, like computers, vehicles or office equipment. It can be a line of credit or accounts receivable financing to be used as working capital when payments from clients are delayed or being processed. Equipment financing is considered a separate type of loan, and banks offer both equipment purchase and leasing loans. Under the lease option, the concept is that the bank buys the equipment from the manufacturer or seller and leases it to the borrower who then gets to use the equipment. In return, the borrower must pay the bank monthly lease installments. Even the normal equipment purchase loan agreement is actually a "lease-purchase" agreement until the borrower has repaid the bank. There are plenty of options available even for cases where a banker is not willing to consider the proposal. In such situations, borrowers can instead apply for loans backed by state and federal agencies like the SBA. The Small Business Administration does not directly hand out loans. Instead, it provides a guarantee to bankers than an SBA loan applicant will repay the amount borrowed. With a guarantee like this, bankers have no problems approving loans even to those with bad credit. In fact, going through the SBA is always a better option than getting finance for small business directly from the bank. The banks bear no risk and can afford to reduce interest rates for SBA-backed loans, and offer bigger amounts to the same borrower they had rejected previously.
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