Your Local Financial Institution is Your Small Business’s Best Bet

Don’t pay the high price that comes from seeking loan alternatives outside your local financial institution

01/02/2015

Some entrepreneurs who are looking for ways to finance a startup don’t want to bother with a financial institution loan because they think the process will be too difficult or they think they can find a better deal online. Unfortunately, many scams prey off the type of innocence that new business owners have.
 
Even legitimate loan alternatives can end up hurting your business in the end because the price you pay for convenient, fast money typically ends up being higher than it seemed up front. If you’re looking to finance your small business, it is in your best interest to talk to a local financial institution before you seek loan alternatives.
 
The financial crisis of 2008 made it more difficult in the subsequent years to find a loan to start a business. Small, local financial institutions remained the strongest supporters of small businesses throughout those difficult years, however, and now that the economy is in recovery, they’re providing even more small businesses with the finances they need.
 
“Big banks approved less than a fifth of all requests for small-business loans they received in January, while small banks approved about half of such requests,” stated Amy Cortese, from the New York Times, citing a survey by Biz2Credit, which is an online platform that matches businesses and lenders.
 
So, if you’re looking for money to start a new venture or to expand your current small business, don’t discount your financial institution. The services that your local financial institution provide cannot be found anywhere else, so it should always be the first place you look. No other finance provider knows your community and the people you do business with as well as your local financial institution.
 
Even though small, community-based financial institutions are becoming more and more able to provide small business loans, many entrepreneurs are unaware of this trend. Other entrepreneurs seek alternative financing because they want cash fast. Karen E. Klein from Bloomberg Businessweek describes that alternative lending, “can be costly but gets money to entrepreneurs quickly and without a lot of hassle.”
 
When the bills begin arriving, the cost of speeding up the financing process can be quite a shock. Cortese states that “…these loans typically are similar to a cash advance, with a fixed amount or percent of sales deducted daily from the borrower’s bank account over several months. Given the short loan terms, a small-business borrower can end up paying 50 percent or more on an annualized basis without realizing it.”
 
Running a business requires thoughtful financial planning at all steps, so get the right start by carefully managing your initial financing and skip the fast cash that alternatives promise. If you’re thoughtful about the way you approach your local financial institution, you can set yourself up for success.
 
Entrepreneur Laurie Pettinella Zona talked to Bloomberg Businessweek about things that startups can do to help obtain financing. The steps she recommends are “clearly illustrating why your business is a less risky investment…show that your business has a proven business model,” and she suggests that you “put your best foot forward and sell yourself: your résumé, background, references, prior successful businesses, and history of paying back loans or investors.”
 
“Paying down your personal debt and getting your credit score as high as possible are also good ideas,” reports Klein.
 
If you take care during these initial steps to prepare yourself before you meet with your financial institution, you will be well on your way to securing financing without having to resort to risky alternatives.

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