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As the economy bounces back and the U.S. transitions out of the pandemic, small-business owners will need access to capital to both recover and grow. However, since federal relief from the Paycheck Protection Program ended on May 31, business owners may be wondering where to get financing or looking for new options after an unsatisfactory PPP experience with a particular lender.
“You're a number at a big bank,” says 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 will always depend on a company’s specific needs, qualifications and industry, among other factors. Here are four options to consider.
1. Regional and community banks
Small banks typically offer low interest rates, long terms and high loan amounts, as well as personalized attention and streamlined decision making. However, their technology has lagged behind other lenders. Lappetito says that’s become less of an issue.
“The biggest change PPP and the pandemic has had on banks, as well as bank clients, is it pulled forward the digitization of banking by five-plus years,” Lappetito says.
As an example, banks moved 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 small-business loans are still difficult to qualify for; business owners will need excellent credit and strong finances.
Also, although big and small banks alike have been slowly increasing loan approval rates throughout 2021, Biz2Credit’s Small Business Lending Index report shows they’re nowhere near pre-pandemic levels — in February 2020, small banks approved 50.3% of small-business loan applications, compared with only 18.9% in June 2021.
2. Small Business Administration
Although the PPP program has expired, standard SBA loans, such as the 7(a) loan, will continue to be strong funding options for small businesses. Like bank loans, SBA loans can be tough to get but offer long terms and affordable interest rates.
In December 2020, to help support small businesses and encourage lenders to issue capital, the SBA increased the guarantee on 7(a) loans and waived standard loan fees. This move “has allowed lenders who might've sat on the sidelines in this time period to be more active,” says Mike Rozman, CEO and co-founder at BoeFly, a financial marketplace specializing in franchise solutions.
And with the pickup of the economy, ozman believes more lenders will stay in the SBA loan market, even though the increased guarantees expire on Sept. 30.
3. Online lenders
Banks have made some progress in technology improvements, but online business loans can still come with a faster application and funding experience. Although banks can generally offer lower interest rates than online lenders, Rozman says, business owners may be willing to pay a little more for a more efficient experience.
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