As the economy recovers and the US emerges from the pandemic, small business owners will need access to capital to both recover and grow. Since the federal exemption from the Paycheck Protection Program ended on May 31, business owners may wonder where to get financing or look for new options after an unsatisfactory PPP experience with a particular lender.
“You’re a number at a big bank,” said Carson Lappetito, president of Sunwest Bank, a regional bank headquartered in Irvine, California. “I think most clients experienced this when they went through PPP.”
The best source of funding depends on a company’s specific needs, qualifications, and industry, among other things. Here are four options to consider.
1. Regional and Community Banks
Small banks typically offer low interest rates, long maturities and high loan amounts, as well as personalized attention and streamlined decision-making. However, their technology has lagged behind other lenders. Lappetito says that has become less of a problem.
“The biggest change that PPP and the pandemic have undergone for banks, as well as for banking customers, is that it has accelerated the digitization of the banking industry by more than five years,” said Lappetito.
For example, banks switched to using Docusign — an electronic signature and agreement platform — in a matter of weeks, Lappetito says, as they went through the PPP process.
Nevertheless, bank loans for small businesses are still difficult to qualify; entrepreneurs need excellent credit and strong finances.
While both large and small banks have slowly increased loan approval rates in 2021, Biz2Credit’s Small Business Lending Index report shows they are nowhere near pre-pandemic levels – in February 2020, small banks approved 50, 3% of small business credit applications are good, compared to just 18.9% in June 2021.
2. Small Business Administration
Although the PPP program has expired, by default SBA Loans, such as the 7(a) loan, remain strong financing options for small businesses. Like bank loans, SBA loans can be hard to come by but offer long terms and affordable interest rates.
To help support small businesses and encourage lenders to spend capital, in December 2020 the SBA increased the 7(a) loan guarantee and waived standard credit fees. This move “has allowed lenders who may have been sitting 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 picks up, Rozman believes more lenders will remain in the SBA loan market, even as the increased guarantees expire on September 30.
3. Online Lenders
Banks have made some progress with technological improvements, but online business loans can still come with a faster application and funding experience. While banks can generally offer lower interest rates than online lenders, Rozman says, entrepreneurs may be willing to pay a little more for a more efficient experience.
A February 2021 report released by S&P Global Market Intelligence predicts fintech lending will exceed pre-pandemic levels over the next three years. Small and medium-sized businesses, in particular, are expected to increase lending by 16.2%, for an estimated total of $15.8 billion per year by 2024. Online lenders are also typically more willing to lend to newer businesses or companies with honest credit.
4. Nonprofit Lenders and CDFIs
Nonprofit lenders and community development financial institutions, or CDFIs, can be great sources of affordable financing, especially for smaller loans. These mission-driven organizations are also particularly good options for underserved businesses, such as women-owned and minority-owned businesses.
During the pandemic, nonprofits and CDFIs have established low-interest loan programs to support entrepreneurs left behind by the PPP program, said Luz Urrutia, CEO of Accion Opportunity Fund, a California nonprofit CDFI.
For example, the Southern Opportunity and Resilience Fund offers loans of up to $100,000 to help businesses navigate the current crisis. But capital is not the only goal of these initiatives. Urrutia says these programs also provide the support and coaching businesses need to transition to other types of financing.
Wherever you seek financing, Urrutia advises caution. Check out resources like the Small Business Bill of Rights and make sure the terms of each loan are clear.
“This is the time when predators come looking for you,” Urrutia says, “and this is the time for you to take some time and do your homework.”
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Randa Kriss writes for NerdWallet. Email: email@example.com.
The article Now that PPP is closed, small businesses have these financing options, originally appeared on NerdWallet.