small business

3 ways to get a small-business loan

a pen and a check
  • Banks are still the cheapest, most trustworthy source of funding.
  • Small Business Administration loans now increasing in number.
  • Investors, small business offering financing on the Internet.

The rough economic environment has made it difficult for small businesses to obtain loans.

Overall lending plunged 7.5 percent in 2009, the largest decline since 1942, according to the Federal Deposit Insurance Corp.

"That trend is continuing; times are very tough," says George Cloutier, chief executive of Orlando, Fla.-based American Management Services, a consultant to small businesses.

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However, companies with sound business strategies still can borrow. Options include loans from traditional banks and institutions affiliated with the Small Business Administration, as well as financing from Internet-based lenders.

"For creditworthy, high-scoring small businesses, there is money available," Cloutier says.

Bank loans

The best place to get a small-business loan is still a bank, Cloutier and other experts say. Banks typically offer the lowest interest rates and many have established reputations as trustworthy lenders.

But today, small businesses must expand their search to find a bank willing to lend.

"Many small businesses try three or four banks and then stop looking," Cloutier says. A more persistent approach has better odds of success.

"Take out the phone book, target 10 banks and work through that list," he says. "With enough aggressiveness, you will find who might be able to make loans."

That strategy worked for Michael McKean. He is chief executive of The Knowland Group, a Salisbury, Md., company that helps hotels fill up their meeting space.

The success of The Knowland Group left McKean searching for a bank that would give the growing company expanded access to credit.

"We talked to every bank in our area, at least a dozen," McKean says. "Many came back with proposals, but the terms were very onerous. Or sometimes they shifted terms."

Finally in November, M&T Bank came through.

"They just wanted to get our business," McKean says.

McKean says his company did not approach M&T any differently than it had approached the other banks. It was just a matter of being persistent until the right deal came along, he says.

"We did everything right, approaching the right person at each bank," he says. "We're a profitable business. I think it was just the weak economy and credit crunch that prevented us from getting a loan."

Cloutier says the key to success with banks today is to show past profitability, and to describe a well thought-out plan for future profits.

"If you aren't making a profit now, you must be able to tell the bank how you will change that in the short term, or you really won't be able to get a loan," he says.


He also recommends that businesses start small in their loan requests.

"If you need money for four trucks, ask for two," Cloutier says. "The bigger the loan request, the harder it is to get it approved."

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