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Hey everybody. This is Gene Marks and welcome to another episode of The Hartford Small Biz Ahead Podcast. Hope you’re doing well and welcome to 2023. Listen, it’s gonna be a tough environment for financing in 2023. Interest rates themselves are going up significantly already, and will continue to rise. I have some clients that are looking at some of their commercial loan interest rates, the double digits, and that’s not gonna change anytime soon. A lot of that’s being driven by the fed’s actions to decrease inflation. With interest rates going up as much as they are, it’s gonna make the financing environment very, very challenging. Not only for existing businesses that have good credit but it’s gonna increase your costs of borrowing for sure. But for companies seeking growth and certainly for startups, the availability of capital is going to be more challenging because as these costs go up, banks and other lenders are gonna start retracting what they’re making available.
So, if you are looking for financing in 2023, where do you go for some type of loans? Where do you get that loan in 2023? Well, I’ve got 10 suggestions for you. 10 specific places where you can be going to try and get a loan. So let’s start out with number one, and that is the most obvious one, which is loans from a big traditional bank, right? Wells Fargos and the City Banks and all of those kind of big ones that are out there. They are the least risky. They will offer the best interest rates, but they’re also the toughest to get. The big bank loans or people that are going to make sure that you are doing your due diligence, have history, offer collateral, perhaps even personal guarantees. But again, those are like the first place that you want to go to is one of those big banks.
If your business has been established, it has been around, you have more of a chance of getting a loan from a bigger bank than a smaller, if you’re a startup or have had any kind of financial trouble in the past few years. Number two is a loan from a small bank that’s like an independent bank or a community bank, or a CDFI a certified development financial institution. These institutions will loan money. In many cases, smaller businesses, you’ll probably pay a little bit higher rate of interest but you do get a lot of, lot of good service. And I have good reports from a lot of my clients and readers who get loans from smaller and independent banks, even credit unions, by the way. Again, a little bit more costly, but their due diligence is a little bit less. They’ll work more with you, than dealing with a larger bank which is sometimes a little bit less personal. Number three is a loan that’s guaranteed by the SBA, the Small Business Administration. An SBA loan is either a 7A or a 504 loan. You…
Get that loan from a certified SBA lender. You can find them on SBA.gov. These are banks. Sometimes they’re big banks, sometimes they’re smaller banks, but these are banks. The thing is, is that the SBA loans are like 80% guaranteed by the federal government. So the risk to the bank to lend that money out to small businesses is less and their job is to try and get money out there. That’s why the SBA makes these available. The interest rates generally tend to be at or a little bit above market rate and they will still be requiring you to do due diligence, but you have more of a chance of getting a loan from a big and a small bank if you try and do it through the small business administration lender program. Number four is online lenders. There are some big players out there like Kabbage and Fundbox and OnDeck.
These lenders themselves, will do very short term loans. They can be very expensive and I am not kidding when I tell you some of these places charge interest rates of like 50% a year, fifty, Five-O. But bear in mind, I don’t have many clients that get long-term loans from an online vendor. If you are looking for short-term capital. I had a client recently that was looking to secure a great location in Philadelphia and they found it, but they had to come up with cash for a security deposit right away. And rather than going through a bank, which they might not have gotten the financing at all, they got a short term loan from an online lender and then refinanced it into something longer term with a more traditional lender. So consider an online lender for short term loans.
You’re not gonna pay the annual interest rate, but if you’re gonna have it for a month or two, quick approval, get the money into your hands so that you can make that critical purchase. Number five are merchant advances. So if you’re a restaurateur or a retailer, talk to Square or PayPal or QuickBooks Merchant Services and you can look up their competitors as well. All of these places provide short-term loans. Again, higher interest rates, but that’s something that can be managed if it’s very short term and they base the paydown directly through your payment facility because they’re likely managing your payments as well. Cause you’re accepting credit cards and mobile payments, but it’s a quick availability to cash. If you talk to your point of sale or your payment provider, I bet you they have got some type of short-term facility available in the form of a merchant advance. Number six is the State Small Business Credit Initiative, 10 billion dollars. That was authorized through COVID, which is now coming out into the market this year. Last year it started. It’s gonna continue on throughout 2023 and into 2024. Look up your states, Google your state and the State Small Business Credit Initiative. You will find that these loans are being sent out to, given to…
The states. And the states are turning it around and giving it to organizations within your state that support small businesses, minority businesses even larger businesses. And this money is in the form of loans or even grants or even equity investments as well. So Google your state and the small State Small Business Credit Initiative to find out where that money is. Number seven is micro loans. So if you’re a startup or you’re a very small business, look into Accion or Kiva or the Opportunity Fund. These organizations get money from different types of private lenders, private investors and the government. And they turn around and they provide financing in the form of grants and loans to specific small businesses in the micro loans, just a few thousand bucks at a time. Number eight are private lenders. There is a whole industry of lenders out there that you probably never heard of, but they offer financing to small businesses…
Annual financing. The rates are not as high as these online lenders for the short term loans. You can do longer term deals with them but they’re still higher than what a bank is gonna charge. If you’re looking to find some of these private lenders, check out Lendio or Fundera or Nav. Those are like marketplaces for these private lenders where you can go and say what you’re looking for and provide other financial information. And they may be able to match you with a private lender that can give you a loan. Maybe it’s 12% annual rate or 15% annual rate. I know that sounds high, but if you need the financing and you can make it work, it might make the most sense for you. Number nine is credit cards. Still a very popular form of financing. It’s really not something that I recommend unless you’re doing financing at a 30 day period of time.
Credit card interest rates are starting to go up significantly as overall interest rates are going up. But listen, when you get a credit card, it’s an immediate line of credit. And I have a lot of clients and smaller businesses that use their credit cards. Just please be super careful about how you’re getting your financing from a credit card and make sure you’re paying it off as soon as possible rather than paying those excessive interest rates. And finally, number 10 is family and friends. Everybody, will tell you that, borrowing money from a relative can make for an interesting Thanksgiving dinner, but it really is a very, very popular form of financing, particularly among startups and smaller businesses. I have many clients that started up their retail store. Their restaurant. Their small business and they got help from an uncle or from a cousin or from a brother-in-law or sister-in-law and got money. To do that in the form of a note and a loan, sometimes they take an equity piece of it. Obviously, you have to be careful who you’re getting it from, and you have to think long-term. Like God forbid if you can’t pay it back, what’s that gonna…
Do to, to your relationship? But it’s certainly a source of financing this year. So let me recap. There are 10 places to get loans in 2023, even in this higher interest environment and this challenging financing environment. Big banks are number one, small banks are number two, banks that are certified from the small business administration is number three. Online lenders are number four, getting a loan from a merchant, a merchant advance, that’s like Square, PayPal, QuickBooks Merchant Services, that’s number five. The State Small Business Credit Initiative is number six. Getting a micro loan from a small non-profit that provides these things. Accion, Kiva, the Opportunity Fund. Reaching out to a private lender that might lend you money at the higher interest rate, but still something that if you can make it work, might make sense for your business. Go to Lendio, Fundera or Nav. for those. Short-term financing through a credit card, or simply borrowing from a family or a friend.
So listen, 2023 is going to be a tough year, challenging year for getting financing, but the financing is out there. You’re just gonna be paying more for it. I always feel like it’s irrelevant what your interest is gonna be, as long as you can prove the return on investment of getting that loan. If you’ve got a piece of property, a piece of equipment, even some inventory that you wanna buy, and you can justify the return on investment even with the cost, then by all means, go for it. My name is Gene Marks and you have been listening to this week’s episode of Small Biz Ahead from The Hartford. If you want tips or advice and help running your business, visit us at SmallBizAhead.com or SBA.The Hartford.com. Thank you so much for listening. I’ll be back next week with some other advice to help you run your business. Take care.
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