"How Do I Get a Small Business Loan?"

​We recently got an email from a local food company with this simple question: "Would you happen to know the best way to go about getting a small business loan? I have some equipment I'd like to purchase and was told getting a business loan might be the best way to go about it. Any advice would be great!"

We thought others might like to see our answer... Here it is:
There are many ways to get a small business loan. Which ones to prioritize depend on:

• how much money you want
• what you’re going to use it for
• how fast you need it
• how long you’d like to take to repay it
• what your capacity to repay it is (i.e. does your business have enough cash flow, on top of any existing debt, to pay back the loan)
• what sort of collateral you, and your business has to “back” (aka “securitize”) it
• what your personal credit score and history is
• how much you’re willing to pay in interest and fees
• if you or your business belong to any special “classes” (some lenders prioritize businesses from low-income census tracts, for example; some prioritize women or people of color; some prioritize types of business; we prioritize “good food” entrepreneurs, etc.). An example of this sort of lender here in Austin is http://www.bcloftexas.org/lending/small-businesses .

You mentioned equipment. Many people start by asking the manufacturer or the retailer of the equipment if they offer financing, or leasing, or rent-to-own programs.

If you have a good, long standing relationship with your bank or credit union, it may be worthwhile to talk to a loan officer there about their credit programs. If it is a quick turn-around, most banks offer business credit cards or lines of credit. Either is a good idea regardless of whether you need the money, just to build up a business credit history. Typically small business bank loans, including those in the Small Business Administration (SBA) program, must be for a minimum size of at least $100-250k, and require several years of profitable tax returns along with strong (but reasonable) forecasts. But you can ask your specific bank what their requirements are.

We’ve seen small businesses have success with online small business lenders like the local firm Able Lending (https://www.ablelending.com), which requires you to gather up a certain percentage of the loan from your own family and friends network (used to be 25%), but then comes in for the rest, if you qualify with them.

Entrepreneurs that own houses with a decent amount of equity in them have taken out 2nd mortgages, or Home Equity Lines of Credit (HELOC).  Talk to your existing mortgage lender to see if this is an option.

If you have friends and family with money, you could borrow from them. You’d want to make sure it is well documented in formal loan documents, which you can have your attorney draw up, or, if you’re comfortable with this sort of thing, download and edit from LegalZoom (https://www.legalzoom.com/legalforms/promissory-notes). There are also US Federal and Texas securities laws to be aware of, requiring your lenders to be “Accredited Investors” (https://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-bulletin-accredited-investors).

Companies that may not have the ability to get money from any of those sometimes turn to private lenders, that typically have more costly money but more flexible programs. Here in Austin we have a colleague Juan Pablo Mondragon at Liquid Capital that does that sort of thing. https://liquidcapitalcorp.com/principals/en-us/jpmondragon/

Or, there’s us. You can learn about how we approach fundraising here: https://www.austinfoodshedinvestors.org/raise.html, paying particular attention to our qualification criteria for the types of companies we work with. That’s here: https://www.austinfoodshedinvestors.org/qualify.html  If you’d like to proceed, and think that you qualify, please apply.

We hope that helps!