After the Recession of 2008, getting loans to start a small business became increasingly difficult. While it may seem overwhelming for small businesses to get the finances they need, there are options out there. The following are the top ways to get small business funding.

1. Micro-lenders

Micro loans are small loans that may not even be big enough for a regular bank to make, but are enough to help a small business get started. Micro loans can come from either government programs or independent sources. According to the U.S. Small Business Administration, the average small business loan from a bank is about $135,000. If a business needs only $10,000 or less, micro lending may be a good option.

2. Community Banks

Community banks are usually small and locally owned. The people who run these types of banks are sometimes from the community and have an interest in supporting local people in their business ventures. Community banks sometimes look beyond just the financial aspect of determining who gets a loan. They may take into account experience and personal connections when funding a small business.

3. Small Business Administration Loans

These types of loans are from the government but are offered through various credit unions and banks. There are several types of funding available through the Small Business Administration. The 7(a) Loan Program and the Microloan Program are two examples. After the Small Business Jobs Act was passed in 2010, business owners were allowed to use what is called a 504 to refinance commercial debt with lower financing and interest.

4. Crowdfunding

With the Internet being used for nearly everything now, it’s not surprising that it has become a potential source of funding for business startups. Crowdfunding websites such as Kickstarter allow small businesses to get funding through online investors who may donate as little as $25 to a project they deem worthy of support.

5. Angel Investors

These are individuals who are willing to invest in promising startup businesses, but they’re normally not willing to just write a check and walk away. They want to see progress and make a profit in the long run. They may want to see a detailed business plan before investing. They may even want a say in some of the decision making in the business. These types of investors often invest through networks or groups.

Small Business Week

Small Business Administration’s Lending Programs

The Small Business Administration’s top priority is providing small business owners with the funds they need to continue to operate their enterprises. The amount of money that the administration received from the federal government for lending programs has declined for the third year in a row. Although this may appear to be negative, experts who studied this issue believe this is actually good news.

The Latest Trend in Lending

The Small Business Administration or SBA granted loans to owners of small businesses in the amount of $28.6 billion. Last year, administration-approved loans amounted to approximately $1 billion more than this year’s sum. In 2011, small business owners received $30.5 billion in loans from the SBA.

Upon close examination of SBA-approved loans, experts discovered that the administration granted smaller amounts of money to a larger number of people. In 2012, the SBA approved 53,848 applicants for loans. In 2013, the number increased to 54,106, and in 2014, 58,000 applicants received the money they sought from the administration. These statistics are very positive for small business owners.

What Is Driving the Trend?

When the country was in the middle of the financial crisis, small business owners often complained that it was extremely difficult to borrow small sums of money. A small business loan is considered to be under $150,000. Lenders do not like to grant loans of this size because these are known to be riskier loans.

The SBA’s lending programs make it easier for small business owners to obtain credit because the administration agrees to repay lenders in the event that the borrowers default. This encouraged lenders to begin to approve more loans for small businesses, and it is the reason that the number of small business loans increased over the years.

The Analysis

Small business owners are obtaining what they need, and analysts state that this is a good thing. However, something else is going on that may not be as positive. Officials with the National Bureau of Economic Research conducted a study, and they found that these loans are having a negative impact on society.

Specifically, researchers discovered that a location with an increased number of SBA loans experiences a decrease in its rate of income. For example, if a county had a 10 percent increase in small business loans from the SBA, economic growth slowed down by two percent. These loans also impact the surrounding counties’ income negatively. Generally, the jobs small businesses create offer employees lower wages that do not have generous benefits packages.

Where Researchers Believe the Country Needs to Go

According to researchers, the administration favors small businesses and neglects those that will have a real impact on the economy. Researchers with the Census Bureau and the University of Maryland learned that organizations that create most of the new jobs are new businesses and not necessarily just small ones. They came to the conclusion that policymakers are misguided in their focus on small businesses. They believe it is time for politicians to shift their way of thinking.

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