Lending Library

For many people, the American Dream is to take a great idea and turn it into a thriving business. Yet it’s rare that a great idea alone will convince an investor or lender to take a chance on you. Before a lender in particular will approve your application for a business loan, you typically need to prove that you and your business are good credit risks. 

Some borrowers may have trouble satisfying the qualification requirements of traditional commercial lenders—especially startups and small business owners with less-than-perfect credit. This inability to access financing could be a key factor that drove 61% of small business owners to rely on personal funds to address financial challenges in their companies in 2021 (based on a Federal Reserve report). 

If you find yourself in a similar situation where you need business capital, but traditional financing doesn’t make sense, peer-to-peer (P2P) lending could be worth considering. Here’s what you need to know about how this alternative business loan solution works. You’ll also learn whether P2P loans are safe and how to determine if they are the right fit for your small business. 

What is peer-to-peer lending?

Peer-to-peer lending is a method of borrowing money that allows you (aka the borrower) to access funds from multiple investors (aka peers), rather than a single lender or financial institution. Due to this unique borrowing structure, P2P lending is sometimes called person-to-person lending or social lending, as well.

P2P lending platforms utilize technology to bring different investors together to fund an individual loan. Some P2P platforms may even allow lenders to compete with one another to make loans—sometimes (though not always) resulting in more attractive interest rates and loan terms for borrowers than they might receive elsewhere. In other scenarios, borrowers may be able to qualify for financing that they might not otherwise have qualified to receive.

How does peer-to-peer lending work?

Peer-to-peer lending marketplaces use fintech (aka financial technology) to match would-be investors with would-be borrowers who are seeking various types of loans. It’s important to understand that P2P platforms are not lenders themselves. However, the online platform can help perform the following tasks:

• Collect and process a loan application from the prospective borrower 
• Facilitate a credit history and credit score check 
• Share your potential loan offer (including APR and fees) if you’re eligible for financing
• Move your loan to the funding stage, if you accept the offer
• Share your loan listing with investors to see if any are interested in funding it
• Service funded loans, process monthly payments, and divide payments among investors
• Contract with third-party debt collectors to collect defaulted debts

Is peer-to-peer lending safe?

The U.S. Small Business Administration (SBA) notes that peer-to-peer loans could be a practical alternative financing solution for small businesses. Yet the agency cautions that there are both benefits and drawbacks to consider before a business decides to move forward. 

As a borrower, one of the first details you should understand about a P2P loan is the cost. In addition to the interest that the investors charge on your business loan, the P2P platform may charge supplemental fees. (Investors may pay fees to the P2P platform, as well.) Of course, any type of financing comes at a cost, but it’s always wise to do the math, so you know what you’re agreeing to pay for a business loan up front. 

For investors, it’s important to know that P2P investments are not FDIC-insured. Therefore, you may face an added degree of risk with this type of investment compared with other options. At the same time, if the process goes smoothly, you might enjoy higher returns than you’d receive from FDIC-insured CDs or savings accounts. It’s up to you to determine your risk tolerance and how much of your portfolio you’re comfortable exposing to higher-risk investments.

Is a peer-to-peer loan right for you?

If you’re wondering whether a peer-to-peer loan could work for your business, there are a few details you’ll want to consider. First, it’s wise to review your credit reports and scores (from all three credit bureaus, if possible). 

A lender will likely review one of your consumer credit reports and scores when you apply for a P2P loan. Therefore, it’s helpful to know the condition of your credit before you apply for financing. You can access a free credit report from Equifax, TransUnion, and Experian via AnnualCreditReport.com once every 12 months. Through the end of 2023, you can take advantage of free weekly credit report access through the same website. 

Next, make sure you’re in a position to afford a new business loan. If you believe your company might struggle to afford a new monthly loan payment, now may not be the time to seek new financing. 

Finally, shop around and compare P2P loan offers from multiple companies. You may also want to consider other types of small business loans. Comparing different financing offers can help you make sure you find the best deal available for your company. 

Debt financing has long been a preferred financing option for small business owners. It’s true that the majority of entrepreneurs leverage their own money to start or run their business, but those funds often fall short of the ultimate need. In these cases, a business loan gives you more control than you’d get with other routes such as angel investors or borrowing from family members.

However, lenders reject the majority of business loan applications. Rather than letting this reality deter you, it should merely encourage you to put your best foot forward whenever submitting an application. There’s no shame in getting denied by a lender. It happens to everyone. What matters is that you try your hardest and put your business in the best position to succeed.

Here’s a closer look at common reasons loan applications are rejected. Some are easily remedied, while others take more effort. The important thing to note is that none of these factors is a death sentence. If you find that one of them contributed to a rejection, simply make a goal to improve it for your next application. With this focus on incremental improvement, anything is possible.

Here are some of the most likely reasons an application gets axed:

You Botched the Application

One of the biggest contributors to loan rejections is also among the most basic: the applicant didn’t handle the process correctly. This includes leaving sections of the application unfinished, entering incorrect information, or failing to include the required documentation.

You can reduce the risk of this fate by preparing your documents ahead of time. You’ll find it’s much easier to write a business plan or locate your tax returns when you don’t do it the night before the deadline.

Put yourself in a lender’s shoes and it’s understandable why they’re sticklers for details. Because lenders make informed decisions based on the contents of your application, forgetting to complete a section, including erroneous information, or neglecting to send the required documents makes their decision much easier. If you can’t be trusted to fill out an application correctly, how can you be trusted with a large sum of money?

Imagine if a friend asked you to borrow money but had no clear idea what they would be spending it on. That kind of disorganization would probably be met with a polite rejection from you. Most people only loan money to a friend if they trust them and have an idea of where the money is going.

Your Credit Score is Lacking

Credit scores result from an algorithm that lenders use to predict how likely you are to repay the money they might provide to you. The determinants of your score come down to relevant factors such as how promptly you pay your recurring bills and how much of your credit card balance you pay off each month.

Business owners have 2 types of credit to watch: personal and business. That’s right—your business has its very own credit report and credit score from Equifax, Experian, and Dun & Bradstreet, the 3 major business credit bureaus.

A low credit score can stem from a history of late payments, unpaid tax liens and judgments, or high use of available credit. But lenders can also ding you for not having established a long enough credit history.

Just because your score isn’t where it needs to be for one loan doesn’t mean you’re out of luck. Each lender has their own standards and they generally aren’t shy about broadcasting them. So when you see credit score requirements associated with a loan, take them seriously. You’ll save yourself a lot of time by not chasing loans you aren’t qualified to receive.

You can turn around a low score by paying down debt, paying your bills on time, and keeping your account balances low. If insufficient business credit is the issue, Credit Karma recommends taking the following actions to establish a credit history:

• Apply for and use a business credit card.
• Open a business bank account under your business name.
• Get a business phone under your business name.
• Apply for an employer identification number (EIN) from the IRS.
• Register your business with Dun & Bradstreet to get a free DUNS Number.

Taking these steps—and being consistent—can help you improve your business credit score so you can qualify for financing, maybe even at a better rate.

Your Business is Too Green

Every business needs to start somewhere, and there’s no shame in being a young company. It’s actually something to be proud of because it takes determination to turn your idea into a reality.

But many lenders will be understandably skittish when dealing with businesses that lack a track record. The success rates of a company over two years old are much higher and your banker, by his or her very nature, is highly risk-averse. They usually won’t take a risk on a very young company. You should also know that they will likely use your company tax returns to determine how long you’ve been in business. With that in mind, even if you don’t have much to report, file your returns starting with the first year to establish your company’s age right from the start. Your ability to repay your debt is substantially impacted by the amount of money your business brings in, so the more evidence of cash flow you can provide, the better. And for young businesses, this type of evidence is in short supply.

You Need More Collateral

Many small business loans are secured loans, meaning you need to offer something of value to protect the lender in case you aren’t able to make the necessary payments. Assets used for collateral include vehicles, homes, properties, equipment, and retained income.

Lenders prefer borrowers who have skin in the game—assets offered up as collateral, which the borrower would forfeit if they defaulted on their loan. Before you reapply for financing, document all of your personal and business assets, such as equipment, bank accounts, real estate, vehicles, and even accounts receivable, and then decide which you’d be willing to use to secure a loan. As you work through the list, consider your likelihood to default and what the consequences would be if you had to forfeit the assets.

When you lack an adequate asset to use as collateral, you’ll find that lenders are more likely to turn down your applications. While this can be frustrating for borrowers, it makes sense. If lenders always handed out money without guarantees, it wouldn’t be long before they’d run out of it.

Your Cash Flow is Lacking

When lenders want to quickly assess an applicant, they often start with cash flow. Not only does it show the strength of your business performance, but it provides a glimpse into your ability to manage details and stay on top of expenses.

If your business is new, it often lacks the track record needed to instill confidence. The good news is that certain loan options are ideal for newer businesses. Just make sure your business tenure lines up with the requirements for a specific loan before you apply. Some businesses experience seasonal slumps, which is understandable to lenders. What they’ll want to see is that you can balance your financial obligations year-round. Accounting software makes this easier to accomplish by tracking invoices so you can collect payments promptly. Also, this type of software can quickly create cash flow reports for loan applications.

You Went for the Wrong Loan

There are times when a borrower has all their ducks in a row, yet they’ve simply applied for a loan that isn’t a good match for their business. Perhaps your business doesn’t qualify due to its size or structure, or your business plan calls for using the money in ways the lender doesn’t approve.

The point is that your due diligence needs to take into account the nuances of each lender so you don’t waste time applying for a loan that will never be possible for your business.

Banks look at your debt-service ratio to determine whether you’ve got enough cash flow to make the loan payments. To calculate the ratio, take your annual net operating income and divide it by your annual debt payments. Higher numbers are better. You’ll need at least 1.15 for a Small Business Administration (SBA) loan guarantee, and lenders could require a stronger ratio. Next time you apply, run your anticipated loan amount through an online loan calculator to make sure you’re not overreaching.

At the other end, it’s just as much work for lenders to extend a large loan as a small one, but they make more money on the large one. If you’re finding yourself feeling pressured to apply for more than you need just to qualify, consider alternative sources of financing, such as crowdfunding, angel investors, or an SBA microloan.

Your Business Plan is Underwhelming

Many lenders ask for business plans as part of the application process. They’ll review your plan to see how you intend to spend their money, as well as to gauge your organizational and strategic abilities.

Writing a business plan speaks volumes about whether your company is a good investment, and it’s one of the primary tools lenders use to evaluate business loan applications. If yours wasn’t up to snuff the last time you applied for a loan, take the time now to whip it into shape. In addition to descriptions of your company and its structure, your product or service, and your sales and marketing plan, the SBA recommends that you present the following:

• A market analysis
• Financial projections based on your income and cash flow statements, balance sheets, and budgets
• An appendix with documentation supporting your application

Applying for a business loan is never easy, but it’s preferable to letting cash-flow issues keep your company from growing. By shoring up your credit, keeping your requested loan amount realistic, and wowing lenders with a business plan that shows you and your company in the best light, you’ll maximize your chances of getting the funding you need to take your business to the next level. 

Never rush this stage of the application. Your business plan is your sales pitch, as well as your guiding light. If done correctly, it will sufficiently impress the lender so that you can obtain the financing you require. Once you have the money, it will then serve as your blueprint for spending it in the most effective way possible.

Your Financial Statement are Lacking

Not having accurate, informative, timely, accessible, and comparative financial data will hurt your chances if you need to raise money and get a business loan, underscoring just one of the reasons to make sure this part of your business is handled professionally. Here are the most common errors and pitfalls that will hinder your business from raising funds:

Revenue Recognition

Actually “earning” your revenue is almost never directly correlated to when you send an invoice to or receive money from your customers. Each industry has one right and many wrong ways to recognize revenue, and bankers and sophisticated investors will be familiar with each. If you are a software company and the banker does not see that you have an account called “Deferred Revenue” on your balance sheet, for example, they will lose confidence in your ability to run your business.

Gross Margin

There are two main expenses in a business, and they should be separated on your profit and loss statement. Specifically, all expenses directly related to the manufacturing of your products or the fulfillment of your services, also referred to as costs of goods sold or cost of sales, should be subtracted from your net revenue (correctly recognized as mentioned above) to determine your gross profit. Then divide your gross profit into your net revenue to find your gross margin. Many businesses fail to show this separate from the rest of their expenses and net profit before taxes, but it is a number bankers and investors want, and need, to know.

Balance Sheet Reconciliations

Every single account on your balance sheet should be reconciled every month, not just your bank and credit card accounts. This includes a thorough review of your accounts receivable, inventory, accounts payable, payroll liabilities, inter-company loans, and more. You need to be able to explain to a banker or investor what each account represents and even be able to provide documentation, upon their request, to validate the balance reflected on your balance sheet. Too many businesses pay little or no heed to their balance sheet, but investors and bankers know it drives the accuracy of everything you present in your financial statements.

Lack of Metric and Ratio Knowledge

You need to know your numbers, and, even more importantly, you need to know what they mean in the context of your past, future, and industry as well as the perspective of bankers and investors. Bankers care about current ratio, days sales outstanding, working capital days, inventory turnover, fixed charge coverage ratio, and other proofs of your liquidity, stability, sustainability, and wherewithal to pay them back. Investors care about EBITDA, free cash flow, burn rate, and other things dealing with the cash required to grow the business and the potential return their investment may garner.

Your Debt Utilization Raises Red Flags

Lenders will pay close attention to the credit currently available to your small business. If you’re using too much, it could mean you are already stretched thin and might not be able to handle your repayments consistently.

On the flip side, if you haven’t utilized credit in the past, you could be considered a risk because you won’t have a debt track record from which they can base their decision. If you have a healthy amount of credit available and are only using a moderate amount, that puts you in the safety zone. It shows you have responsibly borrowed money in the past and know how to handle the repayments.

You Don't Have Any Income

Unlike an equity investor who will reap the rewards of their investment when a business is either sold or goes public, the first loan payment will likely be due somewhere around 30 days after a business owner receives the proceeds. In other words, if there isn’t sufficient income to make the loan payments, it’s unlikely the lender will approve the loan.

Your Loan Isn't Cost-Effective for the Lender

Don’t forget that it costs money to lend money. So if you apply for a small loan from a larger lender, they might see it as more effort than it’s worth. There are plenty of financing options for small dollar amounts, but you need to make sure you’re approaching the right lenders.

The Best Way to Begin Your Loan Search

Many of the mistakes listed above involve carelessness on the borrower’s part. They didn’t research the lender well enough or they didn’t carefully prepare their application. So pump the brakes a bit and take the time to understand your financial needs and identify the exact amount of money you’ll need to borrow.

According to the SBA, the median small business loan in America is $140,000. And the majority of loans are for less than $250,000. These numbers don’t necessarily mean you should follow the trend and ask for $140,000, but it provides a helpful baseline as you decide on the best amount for your needs. Use our SBA loan calculator to estimate your monthly payment and how large of a loan you can afford.

Another crucial factor is when the funds will be in your account. If you need the money right away, you’ll need to look at a small selection of expedited loans. If you have a more generous timeline, you can probably seek out slower options such as SBA loans (which can take up to 3 months to fund).

How to Recover from a Rejected Loan Application

First of all, don’t get discouraged. Only about 1 in 10 applications for small business loans are approved. It’s incredible (in a bad way) that 9 out of 10 business loan applications are rejected.

Having your loan application rejected is a wake-up call that your credit or business health isn’t as strong as you thought (or hoped) it was. It can be a very demoralizing experience—especially if you were counting on that financing to sustain your business operations.

When a loan application is denied, it can usually be traced back to two explanations: bad credit or a high debt-to-income ratio. Fortunately, both of those things can be fixed with responsible practices and a little patience, making you more likely to get a “yes” the next time. Here are 6 things to do as soon as your loan application is denied.

1. Study your rejection letter

All lenders are required by law to send you a written notice confirming whether your application was accepted or rejected, as well as the reasons why you were turned down for the loan. According to the FTC:

“The creditor must tell you the specific reason for the rejection or that you are entitled to learn the reason if you ask within 60 days. An acceptable reason might be: ‘your income was too low’ or ‘you haven’t been employed long enough.’ An unacceptable reason might be ‘you didn’t meet our minimum standards.’ That information isn’t specific enough.”

Understanding the “why” of your rejection helps you know where to focus your efforts, whether that means paying down your existing debt or building more credit history. So, instead of balling up the letter and tossing it into the trash, turn your rejection letter into your new plan of action so that you can be more credit-worthy down the road.

2. Address any blind spots on your credit report

Ideally, you should check your credit report three times a year, looking for old accounts that should be closed or inaccuracies which could suggest identity theft. But with so much on your plate as a business owner, keeping up with your credit can sometimes fall by the wayside.

That becomes a real problem when your loan is rejected for reasons that take you by surprise. Credit reports don’t just summarize your active credit accounts and payment history; they also collect public record information like bankruptcy filings, foreclosures, tax liens, and financial judgments. If any of those things are misrepresented on your credit report, it can be tremendously damaging to your chances of securing credit.

Whether inaccuracies occur due to malicious act or accident, it’s ultimately up to you to stay on top of your own credit. Access your credit report for free on AnnualCreditReport.com, and file a dispute with the relevant credit bureau (either Experian, Equifax and TransUnion) if you see anything shady on the report they provide. As credit.com advises:

“If you see any accounts you don’t recognize or late payments you think were on time, highlight them. You’ll need to dispute each of those separately with the credit bureau who issued that report. Even if the same error appears on all three of your credit reports, you’ll need to file three separate disputes over the item.”

3. Pay down outstanding balances

One of the most common reasons for loan rejection is credit utilization—the ratio of your current credit balances to credit limits. This is slightly different than your debt-to-income ratio, which divides your monthly debt obligations by your monthly gross income. Both measurements reflect how much additional debt you can afford to take on, so the lower these ratios are, the better chance you have of being approved for a loan.

Being denied a loan due to your credit utilization or debt-to-income ratio means that lenders aren’t fully confident that you’ll be able to make your minimum payments. There’s nothing to do here except take your medicine: put your new financing plans on hold and focus on paying down your balances until your debt-to-income ratio is below 36.

4. Beware of desperate measures

If you applied for a loan to stave off financial hardship, being turned down can create panic that can lead to some very bad choices. Predatory lenders make their living on that kind of panic, and their risky, high-interest loans almost always leave you worse off than before.

Predatory lenders offer financing that is intentionally difficult to repay. Through their extremely high interest rates, unreasonable terms, and deceptive practices, these lenders force desperate borrowers into a “debt cycle,” in which borrowers are trapped in a loan due to ongoing late fees and penalties. Two of the most common predatory loans are:

Payday loans: These are short-term loans with interest rates typically starting at 390%. (No, that’s not a typo.) A borrower provides the lender with a post-dated check for the amount of the loan plus interest and fees, and the lender cashes the check on that date. If the borrower doesn’t have enough money to repay, additional fees and interest are added to the debt.

Title loans: The borrower provides the title to their vehicle in exchange for a cash loan for a fraction of what the vehicle is worth. If the borrower is unable to repay, the lender takes ownership of the vehicle and sells it.

Please don’t go this route. If your loan rejection has left you desperate for money, swallow your pride and try to borrow from friends and family instead.

5. For thin credit, start small

Being turned down for an “insufficient credit file” doesn’t mean you’re irresponsible—it simply means you don’t have a long enough history of credit maintenance and payments for a lender to make a confident decision about your creditworthiness.

While this situation is very rare for established business owners (who generally have years of credit card and vendor account payments under their belts), young entrepreneurs might not have a long enough credit history to secure the financing they need. If that’s the case, you’ll have to go through the motions for a while: Opening a couple of small credit accounts with easy-to-manage payments will prove to lenders that you have your finances under control.

The Consumer Financial Protection Bureau recommends two low-risk options to build up your credit file: Secured credit cards, in which you put down a cash deposit and the bank provides you with a credit line matching that amount, and credit builder loans, in which a financial institution deposits a small amount of money into a locked savings amount, and you make small payments until you come to the end of the loan term and receive the accumulated money.

6. Wait for the right moment

When you authorize a financial institution to check your credit for a loan application, it typically creates a “hard inquiry” (or “hard pull”) that stays on your credit report for two years. This is different from a “soft inquiry,” which is more commonly used in background checks and pre-qualification decisions, and has no impact on your credit. (Some alternative lenders only use soft inquiries during your application and funding process, so it’s important to find out up front if your lender will be performing a hard credit pull, a soft pull, or both.)

Each hard inquiry won’t affect your credit score much on its own, but multiple hard inquiries in a short period of time can be a major red flag for lenders, who may interpret those inquiries as a sign of financial instability or desperation.

When you’re turned down for a loan, your first instinct might be to immediately apply for a loan elsewhere, in order to get a “second opinion.” The problem is, you may be even less likely to be approved for that next application because you’re racking up hard inquiries on your credit report.

Our advice? Don’t apply for another loan until you’ve made significant improvements to your credit and financial health—a process that can take a year or more. The longer you can wait, the better.

Where to Go When the Bank Says No to a Small Business Loan

After you’ve improved your credit and financial health, you’ll be ready to look for financing options again. When looking for a small business loan, whether for expansion, short-term expenses, or any other, you have more options than just checking with your local bank. Banks and other conventional loan providers have certain criteria when approving your loan. They take into consideration many factors such as the time for which you have been in operation, credit scores, the monthly revenue you earn, your business plan, and the collateral you can provide, among others. If you’re unable to meet their conditions, they may not offer you the finance you need. In such a situation, your best bet is to look to alternative or innovative lending institutions such as Lendio to obtain the funds. Here are some of the best options out there.

SBA or Small Business Administration Loan Programs

The SBA has several small business loan programs for small enterprises, intended to meet their finance requirements. While the government does not lend directly to the companies, it works with microloan providers, banks, and other community development institutions. It supports entrepreneurs by laying down certain regulations for the lending procedures.

• SBA 7(a) Loan Program: A very versatile program, it allows start-ups and small businesses to use these funds for buying machinery, tools, furniture, and other equipment, working finances, buying and renovating fixed assets like structures and other property, among others.
• Real Estate and Equipment Loans: You can use the financing provided under this program only for expansion purposes and to buy land, existing structures, developing, renovating, and constructing buildings, and machinery for use on a long-term basis.
• Microloan Program: By way of this program, small business owners cannot buy fixed assets or pay off loans. They can only use the funds as working capital or to purchase small machinery, tools, and other fixtures. You can also buy inventory, furniture, and other supplies you need.
• Disaster Loans: If you’ve lost property and real estate, inventory, machinery, equipment, or any other supplies in a declared disaster, you can use the business loans provided under this program to replace them. This program offers finance at low interest rates.

Alternative Finance Sources

Aside from banks and the SBA, there are many other sources for getting the funding you need. Look around for the many lending institutions that offer you a small business loan without the strict criteria that banks have. They may be open to providing you business loans despite low credit scores, lack of collateral, or insufficient monthly revenues. However, you might have to pay much higher rates of interest and typically, small business loan terms are shorter than those offered by the SBA. Here are some of them:

• Lending Club: You can borrow funds of up to $35,000 from the other members if you have a credit score of a minimum of 650. Other members lend you the finance you need and can earn up to 9% in interest.
• Prosper: The maximum loan amount offered is $25,000 and borrowers with credit scores of a minimum of 640 can access funds. Lenders can provide loans in smaller denominations until the total amount is raised.
• OnDeck Capital: You can access funds from this source if you can prove that you have been in business for a minimum period of a year and have an annual revenue of $100,000. Apply for the business credit you need over the phone or by filling an application form online. OnDeck makes the loan amount available to you within a day or more.
• Communities At Work Fund: if you can meet their criteria and run a non-profit undertaking, this finance institution extends the funding you need. They direct their support to businesses with low-income and communities in the lower wealth category.
• Accion: Depending on certain conditions, you can get financing of a maximum of $50,000 if you have a credit score of at least 525. At the same time, you must prove that in the last one year, you have not declared bankruptcy and have enough monthly earnings to clear your bills and make payments towards your loan.

Crowdfunding Loans

Crowdfunding loans are similar to microloans, and small business owners that cannot access bank finance can make use of them. However, like microloans, you won’t need to pay back the loan amount in cash. Instead, you’ll need to honor the loan obligation in other ways.

• Kickstarter: This institution issues loan products to companies or creative entrepreneurs for expansion purposes. While you’ll remain the owner of the products you create, you’ll need to prove that your enterprise has the total funding to get started. In lieu of the loan amount, you’ll pay in the form of a product or service your company offers. For instance, if you’re planning to open an art academy, you might have to submit saleable art to pay for the loan.
• Indiegogo: The terms and conditions for accessing this funding are similar to that of Kickstarter. However, you don’t need to have the complete start-up finance in hand to qualify for the business credit.

Entrepreneurs and owners of startup companies no longer need to rely on banks to get the business loans they need. Nor do they need to wait for long processing times and submit elaborate paperwork to get approved. Instead, they can contact many other lending institutions and get the small business loan products they need at terms and conditions that are more suitable for their enterprise and its unique needs.

Lendio is a free marketplace for small business loans. Simply answer a few questions about your business and the amount of capital you are seeking. Lendio will instantly match you with loan options from our network of over 50 lenders. Lendio makes it possible to shop for the best business loan options and rates available without having to submit your information to multiple banks and organizations.

With all of these strategies, it’s helpful to put yourself in the lender’s shoes. Their job is to simultaneously fund small businesses and also safeguard their money. It’s a difficult balancing act, and they likely take no pleasure in rejecting applications. You can make things easier for both them and you by carefully preparing each application and ensuring that you’re giving them ample reasons to give you the green light.

If your loan is approved, throw a little party with your friends. If your application is denied, don’t despair. Remember, the majority of loans are met with a hard no. Take positives from the experience by learning from your mistakes and submitting an even stronger application the next time around. This approach ensures you’ll always be progressing and you’ll eventually get the financing your business requires.

Funding is a key part of starting a small business. After securing a loan, you can find an office space, open a storefront, order inventory, launch an e-commerce website, and pay for the services needed to get your small business off the ground. 

Starting and growing your new business doesn’t necessarily mean draining your personal bank account. Instead, look for funding opportunities to supplement your financial needs.

The cost to start and run a successful company varies greatly depending on the business model, industry, location, and the owner’s goals. According to the Small Business Administration (SBA), most microbusinesses with 1–2 employees only need $3,000 to start. Most home-based businesses are launched with just $2,000. 

Obviously, the funding needed to launch a franchise or an innovative tech startup could stretch into the hundreds of thousands, but a lot of small businesses only need a little extra capital to get their business running.

Small business owners looking for funding solutions to cover startup expenses should consider microloans. While smaller in nature, microloans can provide entrepreneurs—especially minority entrepreneurs or those in low-income communities—access to the capital needed to launch their business.

This guide takes a deep dive into microloans and answers frequently asked questions while assessing the value of this financing option. Keep reading to determine if microloans are the right funding solution for your business.

What is a microloan?

A microloan is a smaller loan with fewer stipulations issued to business owners, typically disadvantaged entrepreneurs. A business can use a microloan for a variety of purposes but will have to pay it back faster than traditional loans. 

Microloans typically cover smaller loan amounts with flexible requirements and terms. There’s no set amount for what constitutes a microloan, but according to the SBA, a microloan is any loan amount falling below $50,000. The average microloan amount is around $13,000. However, some organizations issue microloans for a little as $500—especially if they want to support community businesses or help entrepreneurs struggling to secure other funding. 

While microloans are usually available to anyone, some financial institutions will limit applicants to certain demographics. More organizations are specifically developing microloan programs to help disadvantaged business owners access the funds they need but have been unable to receive through traditional financing.

Microloans were built to help disadvantaged business owners.

The modern microloan has its roots in 1970s Bangladesh, where economics professor Mohammed Yunus loaned $27 to local women who wove bamboo stools. Yunus saw how these women were exploited by money lenders and decided to offer a better alternative. 

With his loan, these women were able to buy their own materials and begin selling their stools in their own shops. This small loan helped them launch their businesses, and they were able to quickly turn a profit even as they paid back their loans—helping to break the cycle of poverty and debt.

Yunus went on to start the Grameen Bank Project, which strived to provide funding to poor and disadvantaged business owners. Yunus and his bank were awarded the Nobel Peace Prize in 2006. 

In the modern era, several organizations provide similar services through microloans. In the United States, the SBA offers microloans to qualifying businesses to help them establish themselves and grow. 

Local governments offer small business microloans to foster job growth. Even private organizations have microloan arms that are meant to support lower-income and disadvantaged people. By giving these entrepreneurs the support they need, these microlenders can have a significant impact on communities with minimal capital risks.  

Of course, there are plenty of microloan funding options for business owners who don’t come from disadvantaged communities. However, microloans are rooted in creating opportunities for people with poor credit and limited resources. As many minority small business owners experienced during COVID-relief funding, financing isn’t always equal. Programs like microloans can balance the scales and give disadvantaged business owners access to additional funding.

What's a microloan used for?

Most microloans aren’t limited to a certain type of purchase and can be a flexible way to access the funds you need to open and run your new business. Along with providing a boost to startups, more established businesses apply for microloans when they need to rebuild after a natural disaster or when they want to expand their current operations. Companies of all sizes, shapes, and industries can use the capital from microloans to cover short-term business expenses.

A few examples of common ways small business owners might use microloans include:

• Working capital: this refers to the liquid cash you have on hand to coer daily costs. Working capital can pay for miscellaneous expenses and protect your business if you go over budget for any reason.
• Inventory: a crucial part of many small businesses, from e-commerce stores to local product-based companies. You can purchase items for sale or invest in materials that can be used to manufacture your products.
• Supplies: your supplies can cover everything from safety equipment to office items for your staff. You’re likely going to need to invest more in supplies at the front end of your business but will always need to consider these expenses as you grow.

• Furniture and fixtures: if you have an office or storefront, you’ll need desks, couches, lighting, and other furniture or fixtures to help improve comfort and productivity. You can use a microloan to cover these costs.
• Equipment and machinery: this includes everything from your POS systems to large-scale manufacturing equipment. Like supplies, you will invest more at the start of your business on these expenses, so securing a microloan can give you the capital needed to make these purchases before launching.
• Employee wages: microloan borrowers can use the funds to cover employee wages and salaries. This financial relief can keep your staff covered during a struggling period or while you wait for outstanding client payments.

Some organizations might set restrictions on how you can and can’t utilize microloans, so always review and discuss the requirements with your lender. For example, the SBA states that microloans can’t be used to pay existing debts or to purchase real estate. 

Other microlenders create loans to cover equipment costs or to promote hiring growth, which means you’ll need to use those funds for specific purposes. However, for the most part, you’ll have complete flexibility to use your microloan however you’d like.

What are the pros and cons of microloans?

Like any funding decision, a microloan has pros and cons that could determine whether this financing option is best for you. Just because microlending worked for another organization doesn’t mean it’s right for your needs. Consider a few of the pros and cons of microloans as you weigh this funding option. 

Some common advantages to microloans include:

• Microloans tend to have fewer requirements than traditional loans.
• They usually have lower credit score requirements, which means you’ll still qualify if you don’t have the best credit.  
• They are often approved faster than larger loans, giving you access to necessary funds quickly. 
• They are easier to pay off, which means your business can become debt-free faster. 
• They are less expensive. Smaller loans typically mean lower interest rates, so you owe less on the money you borrow. 
• You may not need collateral. Some microloans won’t require any collateral to prove that you’ll repay the money. 

These benefits have a significant impact on small businesses that need startup funding to open their doors or need a short-term loan to cover emergency costs. However, there are some drawbacks to opting for a microloan. 

Some common disadvantages to microloans include:

• The amount is limited. Microloans are inherently small, which means you may not have access to the full amount needed to make a significant difference in your business.
• The term might be shorter, which means you will need to pay back your loan faster and could have a higher monthly payment than a traditional loan. 
• Some microloans have restrictions on what you can spend the money on—like equipment financing or building remodeling. 
• You may not qualify if you don’t meet certain demographic requirements. Some microlenders support specific demographics (like women-owned businesses), disqualifying entrepreneurs who do not meet those requirements.

As you start to research microlending, consider what amount you’d need to borrow, how you plan to pay it off, and the timeline needed to return the amount borrowed. Answering these questions will help you to determine whether the terms of the loans you find are reasonable and to decide if a microloan is the right option. 

Who issues microloans?

There are several organizations that specialize in providing microloans to small businesses. The SBA is one of the most common sources of microloans, so we’ll start there.

SBA microloan program

The SBA is a popular funding resource for small businesses, and they also facilitate microloans throughout the country. You won’t deal directly with the SBA to apply for and receive these microloans.

Instead, the SBA partners with intermediary lenders—nonprofit community-based organizations with lending and management experience—to review, approve, and distribute microloans to borrowers.

Small businesses looking to secure a microloan from the SBA’s microloan program should know the following details:

• Borrowers will need to contact their local SBA district office to begin the application process.
• Each intermediary lender has its own lending and credit requirements, which can vary.
• The maximum repayment term on an SBA microloan is 6 years.
• The maximum amount a borrower can receive is $50,000.
• Interest rates on the microloan are determined by the intermediary lender but typically fall between 8 and 13%.
• SBA microloans cannot be used to purchase real estate or pay off current debts.

Other microloan lenders

Beyond the SBA’s microloan program, you can also find microloan opportunities from private lenders or nonprofit organizations like Accion USA or Kiva.

To find a lender who can help you secure a microloan, check out the curation lender services from Lendio. You can fill out a few basic forms and compare lenders to see which ones offer the most favorable terms. To start, answer a simple question: how much money do you need? 

If you don’t want to work with a new lender, consult your bank or credit union about their small business funding options. Some banks offer discounts to existing customers, which means you could save by taking out a loan where you already have an account. However, it pays to compare rates, and you could save a significant amount of money by shopping around for loan providers.

What do you need to apply for a microloan?

Preparation is the best way to increase your odds of getting approved for a microloan and receiving your funds faster. Gathering the right information before you start the application process will streamline your approval. 

A few basic items you will likely need for the microloan application include:

• The loan amount you need and what you plan to use it for;
• Your business bank account routing information;
• Your LLC documents and IRS Employer Identification Number (EIN);
• Applicable business licenses; and
• Relevant information about your business (size, employees, annual sales, etc.).

Additionally, you’ll need to be ready for the lender to pull a business credit report and potentially a personal credit report. While you’ll be able to self-report on the application, most lenders will confirm your credit scores on their own. Microloans tend to have lower credit score requirements, but most lenders will still use your credit history to determine your eligibility and interest rates.

Keep in mind that different lenders will set different requirements for loan approval. While this list provides a basic guide for what you should gather, you may need certain documents or statements to confirm your eligibility.

If possible, review the requirements for your microloan before beginning the application process and talk to a lending specialist. They can help you to create a checklist of items to gather before you apply.

The impact of microloans on women and minorities.

Women start firms with about half the capital men do, according to a 2014 study by the National Women’s Business Council, and women-owned firms average about 6% of the outside equity that male-owned firms receive. On top of that, women receive less than 5% of conventional small business loans, even though they make up nearly 40% of all small businesses in the country.

So women are basically killing it in the economy, but they’re not alone. Minority-owned American businesses are growing at a staggering rate. In 2012, minority entrepreneurs owned over 8 million—about 29%—of businesses nationwide. This number was a huge increase over the 5.8 million owned in 2007. Yet many minorities struggle to secure funding due to lower credit scores and fewer collateral assets. The US Department of Commerce found that minority-owned businesses see loan denial rates that are 3 times the national average.

Here we have 2 amazing groups of people who are struggling to find funding for their businesses. Enter microloans. Because microlenders are more interested in fostering growth than they are in making a profit, many choose to focus on bringing their resources to the groups who need them most.

According to a report released by the city of Los Angeles after they approved a new microloan bill, “It is estimated that every dollar loaned to a small business or microenterprise generates approximately $2 of economic activity. As such, the Microloan Program could generate $2,500,000 in stimulus to the Los Angeles economy over the next 5 years.”

Simply put, microloans make the small business world go ‘round.

How you can access microloans.

Because most microloans are designed to help new and struggling businesses, their requirements are much more forgiving. You don’t have to worry if your credit isn’t perfect or if your business isn’t making a million bucks a year. You don’t even have to worry if your business hasn’t been around for a year. Applying for a microloan is easy and stress-free.

SBA microloans

As mentioned earlier, the SBA is all about those microloans, with an average microloan of about $13,000. You can’t go to them directly for the loan, however—you have to go to one of their intermediary lenders. The SBA website has a list of authorized intermediary lenders participating in the SBA’s microloan program. Your results will depend on the state where you live. SBA microloans can be used for:

• Working capital
• Inventory or supplies
• Furniture or fixtures
• Machinery or equipment

Proceeds from an SBA microloan can’t be used to pay off old debts or purchase new real estate.

Repayment terms vary according to the loan amount, planned use of funds, requirements determined by the intermediary lender, and needs of the small business borrower. The max repayment term allowed by the SBA for one of their microloans is 6 years with interest rates varying depending on the intermediary lender.

SBA loans can be a great way to get a good rate on a small loan, but they aren’t the only option for your small business.

Marketplace lenders offer competitive small business loans.

That’s right, marketplace lenders like Lendio offer loans similar to microloans. Though our lenders wouldn’t technically call any of our financial products microloans, we offer loans as low as $500.

Best of all, you just have to fill out our short 15-minute application to get the process started. You’ll start by telling us the amount of money you want—anywhere from $500 to $5 million. You’re probably not looking for millions just yet, but a microloan can help you get there.

Microloans lay a foundation for your growth.

Whether you’re a startup, in a rough financial spot, or just need extra cash, any amount of money can help. $500 can purchase a new piece of software that will streamline your workflow. A couple of grand can get you a shiny new laptop to draft your new book or edit your first YouTube video.

There are certain things microloans probably can’t help you with—like covering your entire payroll, buying a new property, or hiring additional staffers.

However, microloans can become a critical financial tool for your small business.

To give you a better idea about how these funds can help you grow your business, here are 5 common ways small business owners like you use microloans.

1. Working capital

Working capital is the money a business needs to finance its day-to-day operations—like covering utility bills, getting supplies, buying inventory, and paying for an employee appreciation party.

Cash is the lifeblood of every business. Yet many businesses struggle with cash flow, which makes it hard for them to cover run-of-the-mill expenses with any sense of urgency. For example, a recent study by PricewaterhouseCoopers found that the average company takes 68 days to pay its creditors.

With a microloan on hand, you have a reserve fund to dip into to cover working capital expenses. Not only can this help you reduce debt, it can also help you avoid late fees.

2. New equipment or tools.

Often, a simple investment in new equipment can go a long way toward increasing productivity. For example, if a company is still using an old-school cash register and managing accounting by hand, it stands to benefit tremendously from moving to a more modern solution.

You can use a microloan to invest in new equipment or tools that deliver rapid ROI. For example, if you run a company where employees are spread out and working in the field, investing in a collaboration platform like Slack to streamline communication can help your entire team work more efficiently, increasing profitability.

3. Launching a new service.

Let’s say you run a local restaurant that’s been a staple of the neighborhood for some time. For years, loyal customers have been begging you to launch a food truck business so they can grab tasty treats elsewhere across town. You always liked the idea, but you just didn’t have the capital to make it all happen.

All of a sudden, a used food truck practically falls into your lap for a price that’s too good to refuse, and you’re finally ready. You just need a little bit of extra funds to finance some other food truck startup costs.

A microloan can help you here, too. With access to these funds, you can give your truck a tune-up and paint job, buy cooking items, and start your new culinary adventure.

4. Attending a conference.

One of the best ways to grow your business is by attending a relevant conference or trade show that’s specific to your industry. Not only can this help you learn new things and stay on top of the latest developments in your field, but it can also help you land new clients.

Paying for a conference, however, can be tricky. Conference tickets can be expensive, and you may also have to pay for lodging, travel, and food costs, among other incidentals.

A microloan could help here, too. Use the funds to cover your conference-related expenses. If all goes according to plan, the skills you learn and the contacts you make will more than offset this spend.

5. Marketing your business online.

In the age of mobile devices and ubiquitous connectivity, how can you expect people to find your business if you don’t have a robust web presence?

Microloans can help you pay for online marketing initiatives. For example, you might decide to invest in content marketing, pay for sponsored posts, or advertise your business on Google and social media. Microloan amounts should be enough to launch test campaigns or boost important company news.

What are some alternatives to microloans?

If you decide that microloans aren’t the best option for you, there are other funding alternatives to consider. These options can provide the same flexibility and similar funding amounts to microloans. Consider what’s available to you and whether these choices are better for your business. 

• Business credit cards. Like a personal credit card, a business credit card lets you spend money on anything you want. Your credit provider will set a limit for how much you can spend, but you can keep charging the card as long as you stay below that limit and pay it off. Credit cards have several benefits—namely their cashback rewards—but they might not be available if you have poor credit. They also might have annual fees and high interest rates that drive up their costs. 
• Crowdsourcing. Crowdsourcing is the ultimate microloan. Instead of seeking a lump sum of money from 1 person, you ask many to give you a few dollars each—like asking 200 people for $10 to raise $2,000. Websites like Kickstarter are popular for small businesses to raise funds, and you might not even have to pay the loan back. However, crowdsourcing is unpredictable, and you may not get all the funds you need if your goals aren’t met. 
• Peer-to-peer lending. P2P lending is like crowdsourcing, but it tends to occur on a larger scale. Through P2P sites, investors and entrepreneurs can donate a few thousand dollars as a loan that you’ll pay back once your business starts to grow. Like crowdsourcing, the main drawback is that you don’t know if people will want to loan money to you. You might also have to follow strict repayment terms.   
• Small business grants. Grants are like loans, except you don’t have to pay them back. Some local governments and nonprofit foundations offer microgrants to small businesses to help build up their communities. While these grants are free, they often require a complex application process because so many companies apply for them. Plus, you may need to use the grant for specific projects—like investing in clean energy or job creation.

At Lendio, we have several business funding choices for your needs. Learn more about equipment financing, merchant cash advances, and other ways to secure small and large amounts of money to start your business.

Let us help you secure a microloan.

If you only need a few thousand dollars to launch your new business venture or help cover inventory costs, then a microloan might be right for you—especially if you’re a marginalized business owner. These smaller loans are a great way to get the working capital you need without taking on a lot of the risk or financial burden that comes with larger funding options.Whether you hope to secure $500 for a short-term upgrade or need a $50,000 investment, our team at Lendio is here to help you. Use our guides to research different funding types and opportunities for small businesses. You can find a potential microlender or an alternative option to increase the cash flow of your business.

As a business owner, it’s important to use financial forecasting tools to develop a plan for your company. These tools can help you determine whether your business is headed in the right direction and see how your results vary from your expectations.

Two financial strategies you can use are budgeting and budget forecasting. While there are some similarities between the two, they aren’t the same thing. Let’s look at how budget forecasting works and how you can set one up for your business.

What is Budget Forecasting?

Budget forecasting is a confusing term for many people because it combines multiple financial tools. It is essentially a combination of a budget and a financial forecast—it uses a budget to create a plan for the upcoming fiscal year using historical business data. 

What is a Budget?

A budget is a spending plan for your business based on your projected income, expenses, and cash flow for the upcoming year. A budget helps you understand how much money you have and how much you’ve spent. 

A budget can help you make important financial decisions in your business, like whether you need to cut your expenses or have the funds to buy new equipment. And a detailed budget can make it easier to obtain a loan from a bank or financial institution. 

Your business budget should include the following components:

• Estimated revenue: The estimated revenue is the amount of money you expect to bring in from the sale of your products or services. The easiest way to figure out your estimated revenue is by multiplying the expected number of sales by the average sales price. 
• Expenses: Your budget should also account for any expenses in your business. Spend some time thinking about the fixed and variable costs your business typically incurs throughout the year. It’s also important to account for the occasional one-time expenses, like replacing equipment.
• Cash flow: The cash flow is the amount of money being transferred in and out of your business. You want to track your cash inflow and cash outflow, as this will affect liquidity.
• Profit: Your profit is the amount of money your business gets to keep after all its expenses are paid. If the profit is increasing year over year, that means your business is growing. 

What is a Forecast?

A financial forecast is a high-level projection of expected business outcomes based on existing data. A comprehensive forecast looks beyond the factors directly impacting your business and considers other factors as well, like social and economic influences.

A budget is typically a short-term projection, but a financial forecast can be used for short-term and long-term projections. It typically includes the following information:

• The current and expected revenue
• Information about fixed, variable, and one-off expenses
• A financial projection of the company’s expected growth

Budget vs. Budget Forecasting: What’s the Difference?

There are similarities between a budget and budget forecasting, but they aren’t the same. A budget outlines the direction a company would like to go, while a budget forecast shows whether the business is actually headed in that direction. 

And while a budget is typically done once a year, a budget forecast is updated monthly or quarterly. And unlike a budget, budget forecasting doesn’t account for any variance between the budget and actual performance. 

The most significant difference between these two strategies is that a budget is typically created to help a business meet a goal. It’s a static financial document that outlines a company’s projections for the upcoming year.

In comparison, a budget forecast aims to predict the outcome of a budget. It’s adjustable and can change over time as your business’ needs and expectations change.

How to Make a Budget Forecast

A budget forecast predicts the expected outcome of a budget for the upcoming fiscal year. It uses past sales data to create a short-term estimate of the company’s financial goals. Let’s look at the steps you can take to create a budget forecast for your business. 

Gather Your Company’s Data

The first step is to gather your company’s past and current financial data. List out any information about the sales revenue and expense history. Once this information is listed out in a formal document, you’ll have a better idea of what your future earnings and expenses will be. 

Decide on the Time Frame

Next, you need to determine the time frame you’re looking to measure. For instance, do you want to review the budget forecast monthly, quarterly, or annually? 

Set Your Expected Revenue

Once you have a good understanding of your company’s financial data, you can project your expected revenue for the coming year. It’s a good idea to underestimate your revenue expectations and set this as your baseline goal. Don’t forget to include any additional streams of income, like investments or stock shares.

Project Your Expenses

Now you’re going to project your fixed, variable, and one-off expenses for the coming fiscal year. This can include things like operating expenses, cost of goods sold, and loan payments. It’s a good idea to overestimate your expenses—look at your average spending over the past few years and set your budget forecast based on the higher end of those averages.

Conclusion

A budget forecast is a valuable tool that businesses can use to set financial expectations for the coming year. But creating a budget forecast can be challenging, and it requires that you have a solid understanding of your company’s data.

If your historical data is inaccurate, your budget forecast will be wrong as well. That’s why it’s a good idea to use forecasting software to develop your budget forecast. 

The right forecasting software will make it easier to track your cash flow, understand where your money is going, and identify trends in your business. That way, you’ll always understand how your business is performing and what you should focus on.

Forecasting involves making educated projections about a company’s future performance. It’s an essential aspect of financial planning for small business owners that's often used to inform business decisions and a key request from many lenders during the loan application process.

However, there are many different forecasting methods, and their effectiveness depends significantly on your circumstances, such as your business model, industry, and growth stage.

Here’s what you should know about the most popular forecasting techniques to decide which ones are most suitable for your current situation and incorporate them into your financial planning.

5 Types of Forecasting Methods

Quantitative Methods

Quantitative forecasting methods generally use historical data and mathematical formulas to make predictions. As a result, they produce clearly defined projections and are usually the preferred option when available.

Let’s explore some of the most popular quantitative forecast techniques, how they work, and when they’re a good idea.

Straight-Line Method

The straight-line method of forecasting is the simplest way to make financial forecasts. It assumes that a company’s historical growth rate will remain consistent and uses it to estimate future results.

It’s often most useful when performing revenue forecasting on mature companies that have experienced steady sales growth for years and expect it to continue.

Conversely, it’s much less practical for companies in the early stages of development. They often experience significant volatility, and their future performance won't correlate much with their previous results.

The method’s lack of complexity makes it easy to make quick, rough estimates. However, it’s rarely the most accurate option since businesses never grow at the same rate indefinitely.

However, you can use different historical data ranges to calculate your growth rate and improve the method’s accuracy. For example, say you have the following sales data for your small business and want to project your sales in 2022.

• 2017: $37,000
• 2018: $68,000
• 2019: $112,000
• 2020: $118,000
• 2021: $125,000

You know your revenue grew significantly in the first few years as you gained traction. However, your growth stabilized in 2019, and you expect it to progress at a similar rate in the future.

Therefore, you use your average growth rate from 2019 to 2021 to project your sales for 2022. Your formulas would be:

([(118,000 - 112,000)/118,000] + [(125,000 - 118,000)/125000]) ÷ 2 = 5.3% average growth rate

$125,000 x 105.3% = $131,625 in sales in 2022

Weighted Moving Average Method

The weighted moving average forecasting method is similar to the straight-line approach, using historical data to estimate the future. It involves calculating a weighted average of previous data points to predict the next entry in the sequence.

The technique has a smoothing effect that can help account for trends and seasonals, making it most effective for repeated, short-term projections. Businesses often use it to estimate the next month’s revenue, cash flow, or expenses.

Once again, you can manipulate the formula to emphasize the impact of certain data points if you think it’ll improve the accuracy of your projections. For example, say you have the following net cash flow over the last 5 months:

• January: $2,600
• February: $2,750
• March: $2,700
• April: $2,900
• May: $3,075

You use the weighted average method to perform your cash flow forecasting for June. You believe it’s likely to be most similar to more recent months, so your formula looks like the following:

($2,600 x 10%) + ($2,750 x 15%) + ($2,700 x 20%) + ($2,900 x 25%) + ($3,075 x 30%) = $2,860

To estimate your cash flow for July, you’d repeat the same formula using the months of February through June. You could continue the process for future months, but your forecasts would become increasingly inaccurate the more they rely on projected data.

Linear Regression Method

Linear regression can be a more sophisticated way of creating quantitative forecasts. It relies on the relationship between one or more independent variables and a dependent variable to predict the latter.

As a result, it’s generally most accurate when there is a strong correlation between multiple activities you control and the financial account you want to predict.

However, multiple linear regression is slightly beyond the scope of this article, so here’s an example with a single independent variable.

Say you sell lawn mowing services and exclusively use cold calling to generate leads. You believe it’s the primary driver of your monthly revenue, so you use a simple linear regression model on last year’s data to project your next month’s earnings.

The average correlation between the two variables indicates that cold calling 1,010 times per month should generate roughly $5,055 in monthly revenue. You can use that knowledge to project your earnings for future months.

For instance, you plan to make 950 cold calls in the following January and estimate that you’ll earn roughly $4,755 using the following formulas:

1,010 ÷ $5,055 = $0.1998

950 ÷ $0.1998 = $4,755 in sales

Qualitative Methods

Because quantitative forecasts involve the manipulation of historical data, they’re generally the most objective method of making forecasts. However, that data isn’t always accurate or available, especially for new businesses.

In these scenarios, qualitative forecasting methods become more valuable. Here are some of the most popular approaches.

Delphi Method

The Delphi method is one of the most effective types of qualitative forecasting, but it’s also one of the most challenging to execute. It requires gathering a panel of experts to analyze your business and the market to predict your company’s performance.

You’ll also need a facilitator to manage the process. They'll provide questionnaires to the experts, who remain anonymous, then share summaries of everyone’s aggregated responses with the group.

They'll repeat the process multiple times, allowing the experts to change their answers freely in subsequent rounds until they reach a consensus. Ideally, the arrangement eliminates the bias and conflict that such groups often experience.

Market Research Method

The market research method is one of the most straightforward and flexible forms of qualitative forecasting. There are many ways to conduct the technique, which essentially involves gathering information about your target market to inform your projections.

For example, that might include sending out surveys to consumers about their purchasing habits, analyzing your competitors' marketing tactics, or studying the overall economic conditions that might affect demand for your product.

While market research is essential for new businesses that don’t have much historical data to rely on, small business owners may also use it to formulate assumptions and supplement their quantitative forecasts.

How to Choose Forecasting Methods

Every forecasting method's effectiveness depends on the circumstances, and choosing the right ones requires critical analysis. There’s rarely a perfect choice—just those you deem likely to produce the most accurate results.

Some of the most important factors to consider when selecting your forecasting methods include:

• Availability and accuracy of historical data
• Time and capital you have to devote to forecasting
• Level of seasonality that your business experiences
• Your current growth stage and growth rate
• Time horizon over which you’re looking to forecast

For example, the owner of an 8-month-old startup has begun to see some traction and wants to project his sales over the next 3 months.

He rules out the straight-line and weighted-average methods because he lacks data and the company is growing in leaps and bounds. He wants to supplement his quantitative forecasts with qualitative techniques, but the Delphi method is too costly. 

As a result, he ultimately decides to use a combination of market research and linear regression to make projections for his gross revenue over the next quarter, which he believes currently correlates strongly with his Google ads investment.

Don’t be afraid to experiment with multiple forecasting methods as your business grows. It takes practice to determine which techniques work best for you and to develop the skills necessary to execute them effectively.

Use Forecasting Software

Business analysts have traditionally used spreadsheets to build their financial models and complete forecasting techniques. While spreadsheets can be an effective tool, using them is time-consuming and leaves you highly vulnerable to human error.

Forecasting software is much more efficient and minimizes the risk of mistakes. Fortunately, Lendio offers a forecasting tool that integrates seamlessly with our free bookkeeping tools, making it perfect for small businesses. Sign up for an account today!

A business line of credit is a pre-agreed amount of money that you can borrow when you need it and pay back when you don’t. As such, it’s a useful and popular tool that businesses of all sizes use to overcome cash flow gaps. But funds from a line of credit can also be used to grow the business in many ways, helping business owners accomplish more, faster.

That’s because you can use the money from a line of credit any way you wish. Unlike a traditional bank loan that must be used for the specific purpose, with a line of credit you can draw funds whenever you want, use them however you want, and draw the exact amount you want. If you don’t need the money right away, don’t use it. You can repay the credit line at any point (as allowed by your credit agreement), unlike a term loan from a bank, which has a fixed monthly repayment schedule.

Benefits of a Business Line of Credit for Small Business Owners

Finding the right funding for your small business needs can be tough. There are so many options to choose from. Lines of credit (LOCs) are perhaps the best option for small business owners. Here are 10 reasons why small businesses can benefit from a line of credit over a loan.

1. You have quick access to your cash. 

Unlike a loan, a line of credit allows you to draw funds when you need it, rather than taking out one lump sum from the start. This is especially true with lines of credit that are powered online. When you’re in a pinch and you realize you need working capital, the ability to hop on a computer and initiate a loan from your available funds is priceless.

2. You pay back only what you’ve used, not the total amount approved.

Think of a line of credit similarly to a credit card: a lender gives you a line of credit, which you have access to whenever you need it. Let’s say you want to renovate your store. You estimate the total costs of being $35,000, and you’re approved for a line of credit for $40,000. However, once you begin the renovating process, you find that the costs are much lower than expected (let’s say, only $20,000). You can take out just that $20,000, and pay back the interest on that amount, not the $40,000.

3. Cover your expenses anywhere, anytime.

With a line of credit, you can cover any unexpected expenses or any upcoming expenses you know you’ll need help with. Since you are not required to initiate a loan for the entire amount you are approved for, the rest of those funds are sitting there ready for you when you need them. This benefit allows you have the comfort and flexibility that traditional bank loans don’t offer.

4. Your line of credit can be unsecured.

Unsecured loans are a lot less risky for you and your business, and your credit score really comes into play on getting an unsecured loan. With an unsecured loan, you’re at less risk should you default on your payments. Defaulting only increases your rate in an unsecured loan whereas, in a secured loan, the lender is able to seize your assets (personal, business or both) in order to receive what they’re owed.

5. Cover those in-between costs.

When is the cost is too much to throw on a credit card but not large enough to justify taking a loan out, LOCs are great for covering those in-between amounts. For example, if you need to do maintenance on your truck for your company, it can sometimes be pricey. In some instances, your credit card wouldn’t provide enough, but the cost doesn’t warrant taking out a loan. That’s where LOCs come into play. See how much the bill is and take exactly what you need.

6. Build your business’s credit.

If you’re looking to improve your business’s credit score, a line of credit can help you do so. Making your payments on-time reflects positively on your score and can help you receive a larger line of credit in the future.

7. Separate personal and business expenses.

One issue many small business owners face is keeping that divide between their personal expenses and their business expenses. With a line of credit dedicated to your business, you can smoothly create and track business expenses.

8. Help your short-term goals.

A line of credit can be used multiple times and is something you can get approved for before you need it. It doesn’t serve one specific purpose. A line of credit is great used as a short-term solution for different things such as marketing, renovations, buying inventory or even covering payroll.

9. Find lower interest rates.

Especially when you’re starting a new business, finding an affordable interest rate is crucial to all business owners. Lines of credit tend to carry lower interest rates as they aren’t interest-rate driven (unlike loans). However, these rates tend to be variable.

Ways You Can Grow Your Business With a Line of Credit

When opportunity knocks, here are just six ways you can put that money to work to take your business to new heights.

Form an Alliance with Another Business

Many freelancers or small businesses come together to work towards a common goal, without losing their individual brand identity.

Alliances are a great way to combine complementary skills and break into new markets, without the risk of doing it totally alone. Companies participating in alliances report that as much as 18% of their revenue comes from their alliances.

Start with something as simple as co-sponsoring an event or workshop together, running a marketing campaign leveraging the power of both brands and your combined skills, or working on a small sales opportunity to get a feel for how well you work together. And, remember, they don’t have to be permanent; unlike with a formal partnership, if it isn’t working, you have the option of walking away.

Having a business line of credit on hand gives you the flexibility to take these baby steps and cover costs such as legal fees (NDAs, contracts, liability protection, etc.) and co-marketing when the need arises.

Bring Fresh Thinking to Your Business

Looking to streamline your operations or breathe new life into your sales strategy? If the old way of using invoice factoring companies are not working out, you may want to consider new options. A line of credit is a great way to help you realize new opportunities with the help of a consultant.  

For example, if you have a critical selling season coming up but the same old approach is getting tired, hire a sales consultant to advise on new strategies and tactics. Or, if you’re a solopreneur looking for guidance in how to take your business to the next level, working with a career development coach can bring you fresh insights and helpful training.

Win a Government Contract

The U.S. federal government is the world’s biggest buyer of goods and services and sets aside contracts specifically for small businesses. Lucrative as it is, it takes money to win your first government contract. According to the SBA, some businesses spend between $80,000 and $130,000 to earn their first contract and two years to see any return on investment. For example, if you want to work with the Department of Defense, you must be able to invoice and receive payments electronically, which may require you to invest in new electronic systems. You’ll also need a skilled team of experts who knows how the process works. In an ideal situation, this team would include a proposals manager, contracts manager, experienced sales team and marketing support. While you’re at it, you may want to consider SBA loans to help accelerate your business.   

These investments aside, you’ll also benefit from healthy cash flow. The government doesn’t always pay on net-30 terms, so a line of credit can be a good choice to help you make the necessary investments and be able to draw on those funds quickly, even as soon as the next business day.

Get a Marketing Edge

Small business marketing spend has remained consistent over the years, hovering at around 10% of overall budget. But one trend is emerging – a strong increase in digital channel investment. At least half of small businesses plan to increase spending on social media marketing, content marketing, and online lead generation, whereas print, radio, and other traditional channels are set to see a net decrease in total marketing investment.

Getting into specifics, 75% expect to increase their Google Adwords spend and 71% will bolster their Facebook investment. With more potential clients researching everything online before making a decision about who to work with, can you afford not to make an investment in your online marketing?

But where do you start? What’s the best approach? A marketing consultant can help you pull together a strategy that works for your budget, goals, and expected revenue returns, and a business line of credit is a great way to finance your campaign because you can draw on it at each stage of your campaign, as and when the costs come in, repay it at your convenience, and replenish the credit until you need it again.

Franchise your Business

Franchising is a great vehicle for expansion because the onus is on the franchisee to invest in opening locations and perform well, while you reap a share of the profits. Once you’ve made the initial outlay it’s down to your franchisees to bear the costs of establishing new outlets.

Franchising may be a low-cost way to expand, but it’s not “no-cost”. You’ll need the help of a franchise attorney to draw up a franchise agreement, work with a franchise consultant to develop training programs and marketing materials, and protect your intellectual property, among other steps. It may also take some time to see a return in that initial investment which raises the question of financial exposure.

While there is no set cost for franchising a business, each business is different, many of the costs can be borne with a business line of credit. Since the process of setting up a franchise network takes time, you can dip into a line of credit of say $100,000 and pay it off at your convenience. A business line of credit operates similarly to a credit card, with a revolving balance, but they tend to offer lower interest rates, and there are no fixed payments.

Win a Big Contract, Without Cash Flow Woes

Opportunities like large contracts don’t come along often, but they frequently require upfront investment in equipment, supplies, and employees, which can quickly erode cash flow. A line of credit is perfect for this kind of opportunity because it gives you the flexibility to spend only what you need and have access to those funds quickly.

You always have other options for small business funding, however, if you apply for a loan, you must specify how you’ll use those funds, and it can take some time for the funds to be approved. A line of credit is more flexible. Once you start working the contract, you can pay off the line of credit to replenish it and use it again when the next need arises.

Not All Lines of Credit are Created Equal

There are literally hundreds of ways to use your business line of credit. From buying new software so you can scale your customer relationship management capabilities, to launching marketing campaigns that will take you into new markets. But not all lines of credit are created equal. Many banks and fintech companies in the U.S. rely solely on a small business owner’s personal credit score for underwriting. You may find this problematic if you’ve leveraged your credit to build a successful businesses, bruising it in the process.Instead, look for a lender that considers more factors like your total business performance, alongside your credit. Other things to look out for include the ease of the application process and approval timeline. Today, neither of these steps should take more than a few hours. If they do, don’t be shy about looking for quicker, better options.

Starting a new business but not sure what you’ll need to do to help it succeed? Your local business development agency can offer invaluable expertise on everything from registration, planning, marketing, and more. 

Small business development agencies cater to both new and existing businesses alike, providing critical resources to help entrepreneurs launch, grow, or even retire their ventures. 

Ready to learn how to set up a small business or expand your company? Here’s everything you need to know about small business development agencies. 

What is a small business development agency?

A small business development agency offers a number of resources, typically in the form of free counseling and low-cost training programs, to help businesses startup or expand. [1] 

Many small business development agencies collaborate with seasoned[2]  business experts, providing one-on-one professional counseling, advising, and training to existing ventures and startups. Topics are wide-ranging and typically related to an entrepreneur's specific needs, such as funding, technology development, management, strategy, financial analysis, export assistance, market research, sales, and much more. 

Small business development agencies can also offer networking opportunities to collaborate with other local business and government leaders. Many of the services provided by small business development agencies are free of charge, although some training programs or workshops can feature a small fee. [3] 

The goal of these agencies is to help small businesses grow, improve productivity, foster innovation, and help empower local economies and generate job creation making them a priority for state and local governments. [4] 

The most renowned types of small business development agencies are Small Business Development Centers (SBDC), which[5] are typically hosted by local universities and funded by Congress through a partnership with the Small Business Administration (SBA). Most states have several SBDCs in major economic and urban areas. Some local governments also maintain their respective small business development agencies to service regional needs. [6] 

What’s the difference between small business development agencies and industry support groups?

It’s important to distinguish between small business development agencies and industry support groups. While the latter focuses more on the needs of specific industries, the former is geared towards a broader range of sectors. [7] 

Industry support groups are also mostly made up of existing businesses[8] , while small business development agencies cater to both existing ventures and startups alike. Both offer significant opportunities to small businesses and can be a powerful complement to one another.[9] 

How to find a small business development agency

You can find SBA-backed SBDCs by entering your zip code through the SBA’s interactive map for local assistance. You can also find regional small business development agencies through your state’s Chamber of Commerce or local government office. 

For a comprehensive look at state-by-state small business development agencies, use the following list as your guide. 

Small business development agencies state-by-state 

Almost all states have SBDCs that maintain multiple locations throughout a state and typically partner with local universities. There may also be a number of localized small business development agencies depending on your state and city. 

Alabama

Alabama Small Business Development Center (ASBDC): They provide one-on-one business advising and educational training for growing small businesses and startups. And they offer opportunities to secure financing and help along the way. Also, advisors can analyze your progress and create plans to further the business.

Atlas Alabama: Access free online resources for entrepreneurs and small business owners to find available state and local resources.

Alabama Small Business Administration( SBA): SBA offers assistance in launching new businesses, and managing and growing existing ones, and they help small business owners pursue and improve their business style and skills. 

National Federation of Independent Business: A member-driven organization that advocates for small businesses.

Alabama Small Business Resources: They make networking opportunities available for small businesses and help business owners get licensed in all 67 Alabama counties.

Alaska 

Alaska Small Business Development Center (ASBDC): They offer no-cost, one-on-one business coaching, workshops, and tools to grow or start a business, funding assistance and pre-launch coaching.

Small Business Assistance Center:They offer free business counseling, and they provide training and resources to grow for-profit and non-profit businesses.  

Arizona

Arizona Small Business Development Center (AZSBDC): Get business counseling, workshops, and training to grow or start a business. As well, you can get robust business analytics and help with future-planning.

National Small Business Association: Find networking opportunities, small business services, and special services for entrepreneurial retirees.

Arizona Small Business Administration: They provide funding, counseling, certifications, and networking opportunities to small businesses.

NFIB: Advocates for small business owners and providers of resources for budding entrepreneurs who want to learn more about sustaining a small business.

Arkansas

Arkansas Small Business and Technology Development Center (ASBTDC): They offer advisory services, training, events, market research, and data for business owners. And they offer one-on-one consulting.

Arkansas Small Business Administration (SBA): They offer counseling, certifications, connections, and disaster recovery to small business owners.

Arkansas Division of Emergency Management: Apply for small business disaster relief grants and loans.

Small Business Resources: A wealth of internal and external resources for small business owners.

Arkansas Business Navigator: Owners of start-ups can register for free business consultations.

California

California Small Business Development Center (CSBDC): The CSBDC offers businesses access to funding, human resources, marketing tools, e-commerce opportunities, accounting services, and many other business needs. They operate an extensive network of 45 small business service centers throughout the state. 

Small Business Development Corporation of Orange County (SBDC-OC): They help small businesses access capital to grow and they bring economic development for underserved communities in California.

The South Bay Entrepreneurial Center (SBEC): They provide business mentorship, educational resources, and commercialization consultations for university-developed technologies. They also offer jobs, funding, workshops, and the option to become a mentor or mentee.

California Manufacturing Technology Consultants (CMTC): A non-profit that offers consulting services to small and mid-size manufacturers in Southern California. Services include advice on how to increase sales, reduce costs, improve quality, workforce training, and more.

South Bay Workforce Investment Board (SBWIB): They offer specialized services to assist local companies to meet hiring goals, lower training costs, improve employee skill levels, strengthen retention rates, turnover rates, and more. They also help business owners succeed at job fairs.

Los Angeles Score: Score offers business advice, small business workshops, and numerous resources to help entrepreneurs start or grow a business.

Colorado

Colorado Small Business Development Center Network: They offer resources for small businesses, non-profits, freelancers, and independent contractors.

El Paso County Located in Colorado Springs, this organization offers business training to help new and existing businesses grow, including free one-on-one consulting and networking events.

Association of Women’s Business Centers: They provide women with entrepreneurial opportunities, training, and mentoring.

Operation Hope: Free coaching for Black business owners.

Connecticut

Connecticut Small Business Development Center: No-cost advisory and analytics services to help businesses access capital.

Connecticut Small Business Administration (SBA): Counseling, certifications, connections, and disaster recovery to small businesses. 

Chamber of Commerce: Free advice to business owners and networking events to grow Connecticut’s small business community and celebrate diversity. 

Connecticut Women’s Small Business Administration (WSBA): Opportunities for female entrepreneurs to grow their businesses.

Delaware

Delaware Small Business Development Center: No-cost advice and analytics for small businesses.

Delaware Division of Small Business: Over 300 programs for small business owners.

Delaware Area Chamber of Commerce: Support for small business owners in areas of market research, strategy, development, and future planning.

Delaware SBA: Counseling, certifications, connections, and disaster recovery for small businesses.

Florida

Florida Small Business Development Center: They offer resources and tools across all stages of business development to help entrepreneurs pursue their dreams.

Florida Business Development Corporation (FBDC): FBCD helps businesses secure SBA 504 loans for purchasing significant fixed assets, debt refinancing, and more.

Florida Small Business Administration (SBA): Find counseling, certifications, connections, and disaster recovery assistance to small businesses. 

Entrepreneurial Learning Initiative (ELI): This program educates and trains small business owners, academic, corporate, government, and nonprofit clients all over the world.

National Entrepreneur Center: NEC has offered one-on-one counseling and seminars to over 220,000 small business owners.

Georgia

University of Georgia Small Business Development Center: They support entrepreneurs by offering educational services and resources across 18 locations statewide.

National Association of Small Business Services: They focus on helping business owners open, grow, and manage their businesses with a unique hands-on approach.

Georgia State University - Atlanta Office: They offer free training programs as well as one-on-one coaching, workbooks, and other resources for startups and other small businesses.

GA State African American Chamber of Commerce: The main focus is on helping Black business owners to succeed in their small businesses.

City of Atlanta Local Business Support: They provide resources to train entrepreneurs to start or expand their businesses.

Georgia Minority Business Development Agency: The center for minority business owners.

Hawaii

Hawaiʻi Small Business Development Center: They offer business advisory, workshops, events, and market research to both budding and seasoned entrepreneurs alike.

Hawaii State Trade Expansion Program (HiSTEP): They help small businesses in Hawaii create an exporting strategy or expand their export development.

The Minority Business Development Agency (MBDA): MDBA offers access to market analysis tools, funding opportunities, business certifications, procurement guidance, and more for minority business enterprises (MBEs). 

Hawaii Small Business Administration (SBA): They provide counseling, certifications, connections and disaster recovery to small businesses.

Women's Business Center: They aid women to help start and expand their businesses.

Idaho

Idaho Small Business Development Center: They offer no-cost professional business counseling, and business resources, as well as specialized services on cybersecurity, environmental solutions, exporting, and government contracting. 

Research and Business Development Center: A place for entrepreneurial undergraduate students to get experience and build useful skills in the future.

Illinois

Illinois Small Business Development Center: They offer no cost, one-on-one business advising services as well as events, workshops, and other resources to help small businesses network and grow. 

Score Chicago: Score connects small business owners throughout Cook County with experienced entrepreneurs, corporate managers, and executives for no-cost business advising and mentorship. 

McHenry College: A grant-funded program that helps growing small businesses and offers free one-on-one counseling, monthly workshop courses, and resources for funding.

Indiana

Indiana Small Business Development Center (ISBDC): They offer no-cost business advising, training, referrals, and resources to businesses within every stage of their journey from startup to retirement.

One Southern Indiana: They provide resources to connect with other businesses and build community. OSI offers job opportunities, advertising, sponsorship, and other resources. 

Madison Chamber of Commerce: They offer support and resources to grow small businesses, non-profit organizations, individuals, and civic groups. 

Iowa

Iowa Small Business Development Center: They provide no-cost business advice and resources for growing and budding businesses.

Iowa Small Business Administration (SBA): They provide counseling, certifications, connections, and disaster recovery to small businesses. 

Iowa Non-profit Resource Center: They offer free resources to help small business owners expand their business through training and connecting with other entrepreneurs. 

DSM USA: They provide free resources to start-ups and small businesses through research, and partnerships with local, state, and national entities.

Kansas

Kansas Small Business Development Center: They offer no-cost business training and a host of services for businesses at every stage of development to retirement.

Cue Impacto HEDC: They offer funds to immigrant and/or Latino-owned businesses to help them overcome challenges they may face. 

PBA Builds: By implementing strategic initiatives to help small businesses at no cost, PBA Builds provides technical assistance to businesses through a consortium of partners, business development professionals, and experts.

Kansas Small Business Administration: They offer counseling, certifications, connections, and disaster recovery to small businesses. SBA provides assistance in launching new businesses, and managing and growing existing ones. 

Kentucky

Kentucky Small Business Development Center: They offer no-cost business coaching, planning tools, resources, and training to entrepreneurs. 

Kentucky Small Business Development Center: They offer free one-on-one consulting, and business management training, reference information, and research.

Kentucky Small Business Administration They offer counseling, certifications, connections, and disaster recovery to small businesses.

Greater Louisville Inc.: GLI helps to grow your business by providing connections, networking opportunities, and business knowledge to get ahead of competitors. 

Louisiana

Louisiana Small Business Development Center (LSBDC): By providing low to no-cost consultations, resources, and networking opportunities to new and growing businesses. 

Southeastern Louisiana University: By offering consultations, SLU assists in securing loans and funding, creates jobs and provides training to businesses.

Louisiana Small Business Administration (SBA): They offer counseling, certifications, connections, and disaster recovery to small businesses.

Maine

Maine Business Development Center: They offer free small business advising for entrepreneurs on a wide range of topics including business planning, credit and financing, marketing, management, financial analysis, and more. 

Maine Small Business Administration (SBA): They provide counseling, certifications, connections, and disaster recovery to small businesses.

Coastal Enterprises, Inc.: CEI provides financing for a variety of purposes, including working capital, equipment purchases, facilities expansion, and construction. They also specialize in financing mixed-use and affordable housing real estate development.

Mainstream Finance: They help with business plans and offer technical assistance for starting a business, business strategy, new product launches,marketing, finances, and other business issues.

Maryland

Maryland Small Business Development Center: They provide low to no-cost professional training services, free one-on-one business counseling, and assistance for accessing business funding. 

Maryland Business Express: They provide a host of resources and a directory for information on how to start, plan, manage, and grow your business. 

Calvert County Maryland: They provide a number of resources to support the growth and development of county businesses, including online listings and reports, confidential counseling, marketing assistance, and educational seminars. Look for their yearly state of the economy report.

Women's Net: They help women start and expand their businesses.

Massachusetts

Massachusetts Small Business Development Center: Find free business advice, low-cost educational programs, and other resources to entrepreneurs.

Massachusetts Office of Business Development (MOBD): They assist businesses relocating to Massachusetts and help growing businesses apply for funding and foster community development. 

MassDevelopment: They offer financing and real estate solutions for nonprofits and businesses across the state.

Massachusetts Alliance for Economic Development (MassEcon): They offer business development assistance through site finding, research, programming, and education.

Score Boston: They provide free counseling and mentoring to entrepreneurs starting or building a business in the greater Boston area through mentorship and workshops.

The New England Business Association: They provide businesses with access to exclusive-rate capital via a preferred vendor program, as well as networking opportunities. 

Center for Women & Enterprise: A nonprofit organization dedicated to helping people start and grow their businesses. 

Massachusetts Association of Community Development Corporations (MACDC): They provide training, technical assistance resources, and access to capital for small businesses located in inner-city and rural areas, as well as traditionally disadvantaged communities.

Entrepreneurship For All (EforAll): They foster entrepreneurial growth in mid-sized cities through pitch competitions, mentorship programs, business advice, and networking opportunities. 

Michigan

Michigan Small Business Development Center: They offer free counseling services for small businesses throughout the state.

Michigan Economic Development Corporation (MEDC): They provide small business assistance and resources.

Michigan Veteran Entrepreneur-Lab: A free three-month entrepreneurship for veterans or military spouses through funding, learning, and support.

PTAC: They offer training programs to small businesses including counseling, assistance with government registration, bid matching, and more.

Minnesota

Minnesota Small Business Development Center: They offer no-cost, customized consulting to businesses at all stages of the life cycle. 

Minnesota Small Business Assistance Office: They present individualized consultation services along with business guidebooks to ensure entrepreneurs have the information they need to succeed. 

Grant Watch: A resource to find grants offered to businesses in Minnesota from government agencies, foundations, and other organizations.

Mississippi

Mississippi Small Business Development Center: They offer one-on-one business counseling, training events, funding assistance, and more.

Mississippi Grant Watch: A resource to find  grants offered to businesses in Minnesota from government agencies, foundations, and other organizations.

Higher Purpose: Higher purpose offers to help Black business owners grow their new or existing businesses.

Alcorn: Women entrepreneurs and small business owners can find training, counseling, and access to capital.

Missouri

Missouri Small Business Development Center: They offer personalized services, knowledge, and resources to help businesses grow. 

Missouri Small Business Administration (SBA): They provide counseling, certifications, connections and disaster recovery to small businesses. 

Community Foundation of Central Missouri: Providing funds to women and business owners of color.

Kansas City G.I.F.T: Funds and training for Black business owners to help them expand their businesses and face unique challenges. 

Montana

Montana Small Business Development Center: They offer business development tools, guidance, and resources.

Bozeman Area Chamber of Commerce: Local, state, and national resources for businesses of all sizes.

Women's Net: Aid for women to help start and expand their businesses at no cost.

Nebraska

Nebraska Small Business Development Center: They offer a number of programs to help small businesses grow and access much-needed resources on a local, national, and regional level.

Nebraska Business Development Center (NBDC): They offer management and technical assistance to businesses in Nebraska — and especially to women-owned businesses.

Nebraska Small Business Administration: They offer counseling, certifications, connections, and disaster recovery to small businesses. 

Nevada

Nevada Small Business Development Center: They provide advisory services, educational resources, training programs, and assistance for businesses and start-ups. 

Northern Nevada Score: They provide free and confidential mentoring to entrepreneurs starting or growing an existing business.

Nevada SBA: They offer counseling, certifications, connections, and disaster recovery to small businesses. 

New Hampshire

New Hampshire Small Business Development Center: They offer business advisory services at no charge and a number of programs to help businesses prosper.

New Hampshire SBA: They offer counseling, certifications, connections, and disaster recovery to small businesses. 

Community Navigator: Critical resources for small businesses in their early stages that are run by women and other disadvantaged people.

New Jersey

New Jersey Small Business Development Center: They offer one-on-one counseling, training programs, networking events, and more to propel new and established businesses. Advisors also use analytics of your progress and create plans to further the business.

New Jersey Business Action Center: They offer free small business consulting as well as networking opportunities to connect with government leaders and fellow entrepreneurs. This includes mentoring, financial assistance, licensing, certification, and more.

New Jersey Community Capital: A resource for minority entrepreneurs and business owners.

New Mexico

New Mexico Small Business Development Center (NMSBDC): They offer no-cost counseling as well as assistance with small business matters.

New Mexico SBA: They provide counseling, certifications, connections, and disaster recovery to small businesses. 

Accion Opportunity Fund: They financially support and advance small businesses run by minority groups.

WESST: They provide entrepreneurs with resources, skills, and technical assistance to elevate their business through podcasts, workshops, and training programs.

New York

New York Small Business Development Center (NYSBDC): They offer free business advisory services in a number of different languages along with free and low-cost training programs, as well as other resources. 

NYC Department of Small Business Services (SBS): SBS connects entrepreneurs to free resources throughout NYC. They also offer advisory services on government regulations. 

SCORE: They provide mentoring to entrepreneurs starting or growing their existing businesses at no cost by offering connections to other entrepreneurs. 

NY Small Business Administration (SBA): They provide counseling, certifications, connections, and disaster recovery to small businesses. 

North Carolina

The Small Business and Technology Development Center (SBTDC): They help small businesses start and grow by offering advisory services and counseling, educational services and tools needed to build and grow.

Carolina Small Business Development Fund: A non-profit providing small business loans, training, and research to support entrepreneurs through research programs, emergency funds, and other resources.

Small Business Center Network: They provide business counseling, training resources, and more to help entrepreneurs launch and grow their companies. 

North Dakota

North Dakota Small Business Development Center: They serve both startups and existing businesses with advising services, training programs, resources for succession planning, and more. 

North Dakota Small Business Development Center: They offer consulting to small businesses with no cost with lists of events, news, and updates.

Ohio

Ohio Small Business Development Center: They provide a number of counseling services in areas of financial analysis, strategy development, market feasibility, and more to help businesses start and grow. 

Miami Valley Small Business Development Service: A confidential and free counseling service for small and medium-sized businesses. By coaching through goal setting, employee management, business planning, and more, they help small businesses.

Ohio Small Business Development Center at Kent Start Stark (OSBDC):This is a low-cost program for new and established small businesses. Services include orientations, one-on-one counseling, workshops, and more.

Oklahoma

Oklahoma Small Business Development Center: They offer no-cost, confidential business advisory services, as well as workshops and technical assistance. 

Oklahoma Small Business Administration (SBA):They offer counseling, certifications, connections, and disaster recovery to small businesses. 

Oregon

Oregon Small Business Development Center: They deliver business advising, classes, and access to resources small businesses need to start and grow. 

Small Business Development Center: They provide expert advice with no cost to small businesses. Services include bookkeeping, business plans, finances, sales, marketing, social media and more.

Lane Small Business Development Center (LSBDC): They offer free professional business advice for Lane County residents with small businesses. Some services include courses, confidential one-on-one counseling and submitting questions to a team.

Pennsylvania

Pennsylvania Small Business Development Center: They provide no-cost consulting services and educational programs for small business owners and entrepreneurs.

Business One-Stop Shop: They offer a host of resources to startups, growing businesses, and companies looking to move to Pennsylvania. Resources include information on writing business plans, naming a business, registration, basic overviews, and more. 

Entrepreneur Works: They provide low-cost loans to businesses as well as training, workshops, coaching, and more throughout Philadelphia and Chester. 

Women’s Business Enterprise Center: They offer resources to help female entrepreneurs launch and grow their businesses. 

Score Philadelphia: Score grants free business advising services as well as mentoring and networking opportunities for entrepreneurs through workshops and provided specifically for black-owned businesses.

Rhode Island

Rhode Island Small Business Development Center: They offer free to low-cost seminars and training workshops to help businesses start and grow. They also provide information on starting a business, training webinars, and more.

Rhode Island Small Business Administration (SBA):They offer counseling, certifications, connections and disaster recovery to small businesses. 

Rhode Island Small Business Development Center: They offer no-cost professional business counseling, and business resources, as well as specialized services on cybersecurity, environmental solutions, exporting, and government contracting. 

South Carolina

South Carolina Small Business Development Center: They present individualized, confidential, and free business consulting for entrepreneurs alongside other critical resources. 

South Carolina Small Business Administration (SBA): They offer counseling, certifications, connections, and disaster recovery to small businesses. 

Shop HERE:They offer free training to start and develop a small business with services including online support, free domain registration, one-on-one coaching, and more.

South Dakota

South Dakota Small Business Development Center: SDSBDC hosts a number of programs and resources to help with starting and growing a business. 

South Dakota Small Business Development Center: They offer free consulting to new and existing businesses by providing research, case studies, resources, programs, and more.

South Dakota Small Business Development Center:They assist existing businesses to stay up to date with competitors. Services include free consultations, training, business planning, marketing, technology development, regulatory compliance, and more.

Tennessee

Tennessee Small Business Development Center: They provide free and confidential one-on-one counseling for startups and existing businesses. Services include free consultations, training, business planning, marketing, technology development, regulatory compliance, and more.

Tennessee Small Business Development Center (TSBDC): They offer free and lost cost options to grow small businesses and help them network, with 400 clients served, and 300 trained.

Tennessee Small Business Administration (SBA): They provide counseling, certifications, connections, and disaster recovery to small businesses. 

Texas

Texas Small Business Development Center: They operate 60 centers throughout the state offering free and low-cost resources helping businesses start and grow. Services include free consultations, training, business planning, marketing, technology development, regulatory compliance, and more.

The Dallas Entrepreneur Center (The DEC): They help entrepreneurs and freelancers in North Texas start, build, and grow their businesses. The free membership program offers mentoring and networking opportunities.

Score Dallas: They offer one-on-one mentorship with leading business experts, networking opportunities, workshops, and more throughout Dallas.

Utah

Utah Small Business Development Center: They offer free one-on-one counseling and management resources to start, grow, and improve local businesses. Services include free consultations, training, business planning, marketing, technology development, regulatory compliance, and more.

The Utah Innovation Center: The catalyst for technology innovation in the State of Utah.

Center for Rural Development: Works with Utah’s rural counties, communities, and businesses, providing economic development resources. The Center is the home of the Rural Opportunity Program and assists with other programs to help local governments and businesses grow and prosper.

Vermont

Vermont Small Business Development Center: They offer business advising and critical resources for new and growing businesses.

Vermont Small Business Development Center: They offer free business counseling to new and existing small businesses. Services include advice on export, digital strategy, funding, hiring, training, and more.

Vermont Small Business Administration (SBA): They offer counseling, certifications, connections, and disaster recovery to small businesses.

Virginia

Virginia Small Business Development Center: They provide no-cost individualized advising to both startups and established businesses.

Virginia Department of Small Business and Supplier Diversity: They provide educational resources and to help businesses grow and access capital. 

Virginia Small Business Administration (SBA): They provide counseling, certifications, connections and disaster recovery to small businesses. 

Washington

Washington State Small Business Development Center: They offer advising services, training, applied research, and more to local businesses. Services also include free consultations, training, business planning, marketing, technology development, regulatory compliance, and more.

Washington Minority Business Development Center: They provide technical assistance and business consulting to established minority-owned businesses throughout Washington state.

American Small Business Chamber of Commerce:They provide contractors, news, resources and opportunities for small business owners to grow and sustain their business.

U.S Chamber of Commerce: They are working towards policies and regulations that benefit small businesses in America to strengthen the economy. 

West Virginia

West Virginia Small Business Development Center: They offer one-on-one business coaching as well as no-cost technical assistance to new and growing businesses. Services also include free consultations, training, business planning, marketing, technology development, regulatory compliance, and more.

Small Business Development Center: They offer no-cost business coaching, workshops, and resources including developing a business plan, marketing, hiring, training, bookkeeping, and more.

West Virginia Small Business Administration (SBA): They offer counseling, certifications, connections, and disaster recovery to small businesses. 

Wisconsin

Wisconsin Small Business Development Center: They provide consulting and business education services to help entrepreneurs start, manage, and grow their businesses. 

Women’s Net: They offer grants for women who own small businesses.

Grant Finder: They provide a list of various kinds of grants that are offered to business owners, old and new.

Wisconsin Small Business Administration (SBA): They provide counseling, certifications, connections, and disaster recovery to small businesses. 

Wyoming

Wyoming Small Business Development Center: They connect expert small business advisors with entrepreneurs for no-cost, confidential assistance. They also provide classes, training programs, the ability to view pre-recorded webinars, and more.

Wyoming Business Council: They offer resources to help businesses start, grow, and obtain financing. They also provide leadership, policy, and investment information.

Wyoming Small Business Administration (SBA): They provide counseling, certifications, connections, and disaster recovery to small businesses. 

Grant Finder:They provide a list of various kinds of grants that are offered to business owners, old and new.

When you review financing options for your business, you’ll likely discover that some lenders want you to sign a personal guarantee. A personal guarantee can help reduce a lender’s risk when it loans money to a business. Yet as a borrower, that same arrangement can put your personal finances in a vulnerable position. 

It’s important to understand how personal guarantees work and the risks you’re agreeing to accept before you sign on the dotted line. This small business owner’s guide to personal guarantees will show you the basic details you need to know on the topic. Once you have more information, you’ll be better equipped to make an informed decision about your business financing options.

What is a personal guarantee?

A personal guarantee is a special provision you might find in a business financing agreement like a small business loan, a business line of credit, etc. The provision states that the business owner (or owners) agree to accept personal liability for their company’s debt. 

If your business borrows money and fails to repay those funds (plus interest and fees), a personal guarantee allows the lender to go after your personal assets to recuperate its investment. So, at least in some ways, providing a personal guarantee is like agreeing to be a co-signer for your business.

Why do lenders require personal guarantees?

You won’t face personal guarantee requirements with every type of business financing. But many business lenders do ask small business owners for personal guarantees when their companies apply to borrow money. The reason lenders make such requests has to do with risk. 

Thanks to how business loans work, there’s a level of risk involved anytime a lender loans money to a borrower. There’s a chance the borrower will fail to repay the debt as promised and that the lender could lose money in the process. 

A lender can try to offset this risk and remain as profitable as possible in a few different ways. For example, lenders will review your creditworthiness when you apply for financing. If you or your business have good credit, you might find it easier to qualify for a loan. 

Another way lenders can manage risk is by asking business borrowers to provide collateral to “secure” the loan, line of credit, or business credit card they are seeking. And, of course, some lenders ask for personal guarantees to encourage business borrowers to repay their debts (and to provide additional resources for collections if they don’t).

Pros and cons of signing a personal guarantee.

There are benefits and drawbacks to signing a personal guarantee. Here are some of the pros and cons you should consider before you agree to put your name (and personal assets) on the line for your business. 

Pros

• There may be more financing options available to your business if you sign a personal guarantee—especially if you have good personal credit. 
• You might have better approval odds if you’re willing to sign a personal guarantee. 
• Signing a personal guarantee might help you lock in a better interest rate for small business financing. 
• Your business might be able to get a loan without collateral if you provide a personal guarantee. 

Cons

• You risk losing your personal savings, home, vehicles, and more if your business defaults on its debt. 
• Your personal credit score and credit history could be damaged if the business falls behind on its credit obligation—and your business credit might suffer, too.
• Even if you sell the business (or sell your interest in the business), your personal guarantee on a debt will likely carry on until the account is closed and satisfied in full. 

No one can predict the future. Should your business be unable to repay its credit obligations for any reason, you could pay the price with your personal wealth, if you agreed to sign a personal guarantee. If that risk makes you uncomfortable, you should probably search for other ways to finance your business.

Ways to avoid personal guarantees.

Many lenders ask for personal guarantees when you apply for business loans—especially if your business is still in the startup phase. But if you’re wondering how to get a business loan without signing a personal guarantee, there may be other options available to you. 

• Work on establishing good business credit. Building business credit is a process. So, the sooner you can start, the better. 
• Search for loans without personal guarantee requirements. With certain types of business loans, like SBA loans, personal guarantees are not negotiable. Yet a few lenders may be willing to loan your business money without requiring a personal guarantee in return. However, every lender is different. So, if you prefer a business financing option that you can obtain in your company’s name—instead of your own name—be sure to do your homework. 
• Supply collateral. If your business has collateral that it can pledge to secure a loan, those assets could reduce the risk involved for the lender. As a result, your company might find it easier to find secured financing options without a personal guarantee than unsecured financing. 
• Consider a blanket business lien. Another way to reduce a lender’s risk when you borrow money is to sign a blanket business lien. A blanket lien gives the lender permission to take possession of all of your company’s assets and resell them in the event of a default. Agreeing to a loan offer that includes a blanket lien is also a high-risk way to secure financing, but it’s the business—rather than the business owner—that’s absorbing most of the risk in this scenario.
• Be aware of a confession of judgment. A confession of judgment is an additional document provided as part of your loan contract package that waives the business owner’s right to a legal defense before a court and allows a lender to go after a business’s assets if the business defaults on the loan. Including this clause is illegal in some states and Lendio does not work with lenders that include one. 

It can be difficult to borrow money for your business or even establish business credit without accepting some personal liability in the process. Lenders tend to be more comfortable working with companies when business owners are willing to put some “skin in the game.” 

However, it’s not impossible to find alternative financing solutions that do not require personal guarantees, if this is the borrowing approach you prefer. 

Consider the benefits and drawbacks of accepting personal liability for business debts up front. Some business owners are comfortable with taking on personal risk in exchange for more attractive financing options. Others are not. Only you can decide whether a personal guarantee is something that you’re willing to chance for the sake of your company.