Additional loan options for SBO's

6/30/2011

The down economy has left banks hesitant to loan and small businesses without enough capital to apply for one.

Inc. Magazine reports that while many banks are looking for some form of collateral from entrepreneurs before supplying a business loan, there are other, less obvious options to consider.

A method called factoring involves a business that sells its invoices at a discount to a third party, transferring the liability onto them. This eliminates the need for credit or collateral, instead focusing on the value of a company's invoices.

"This way you don’t have to commit to some 3-year line of credit with big fees where every time you sneeze they're charging you," Charles H. Green, executive director of the Small Business Finance Institute, tells the news source.

Attempting to work with a private lender is another option, since they typically have more lenient credit policies. However, private loans have high interest rates and contain a variety of additional costs.

Finding a small bank is also an substitute, since they're more flexible with their financing options.

WBUR-FM points out in a recent article that community banks in Massachusetts have increased small business lending. For example, Brighton-based Peoples Federal Bank wrote millions of dollars in small business loans from January to April, since they don't face the strict regulations felt by larger, national institutions.