A Guide to the Market
As the financing market has evolved, new types of loan providers entered the small business loan market. Who are the groups that provide access to small business loans? We’ve outlined the different types of providers below and listed some pros and cons of each.
Banks and Credit Unions
Banks and Credit Unions are the most traditional type of small business lender. These groups typically provide term loans and lines of credit to established businesses. Since they rely on their depositor’s money to lend, their approval rates can be lower than other types of financing. If your business has mid-to-longstanding operating history, bank financing can be an affordable way to receive capital for your business.
Pros:
- – Can be more affordable than other options with lower interest rates and longer payment terms
- – Ability to consolidate your loan in the same place as your business’ operating account
- – Can fund relatively quickly
Cons:
- – Lower approval rates
- – Business must have longer operating history
- – Typically subject to bank hours to apply
Marketplaces
Marketplaces provide a single location where individual lenders compete for your business. These platforms are typically online and have a brief application that collects preliminary information for lenders to be able to determine whether they could provide capital for your business. Since marketplaces combine many different lenders, you may receive multiple offers for your business as well as different types of financing. If you have a good grasp on the benefits of different types of financing, a marketplace could be a great way to find capital for your business.
Pros:
- – Single application connects you to many lenders
- – Higher approval rates due to a wider variety of providers
- – Typically provide fast funding
Cons:
- – Marketplaces may sell your information to other third parties
- – Different types of financing may be offered, leaving you to self-determine what the best option is for you
- – Typically charge higher interest rates
Financial Technology Companies
Financial technology companies rely upon an online platform to secure capital for your business. In many instances, these financial technology, or fintech, companies may be fully provided by a bank or a private investment group. Like marketplaces, fintech companies use an online application to provide you with a financing offer for your business. Unlike marketplaces, fintech companies typically do not provide capital from multiple sources. If you don’t have time to visit an in-person location, but believe a more traditional lender, like a bank, might approve a loan for your company, a fintech could be a good fit for you.
Pros:
- – Online application that connects you to a lender
- – Moderate approval rates
- – User interfaces are usually easy to navigate
Cons:
- – Since they’re backed by traditional capital sources, you may be declined if you already tried applying through a bank or institutional lender
- – Approvals usually tied to more established businesses with consistent performance
- – Can be difficult to reach a real person
Crowdfunding
Crowdfunding is an alternative form of lending that collects small amounts of money from multiple individuals. Crowdfunding can appear in equity investments, but as a loan, crowdfunding is obtained through an online platform that allows individuals to provide you with capital to grow your business. In most instances, the platform aggregates the individuals’ funds, so you only need to repay in one place. Crowdfunding has become increasingly popular for new businesses or product launches, as the individuals contributing to your loan do not need to follow traditional underwriting guidelines.
Pros:
- – Can provide capital to new or start-up businesses
- – You directly ‘speak’ with the individuals who are interested in contributing capital
- – There’s no traditional application, instead you post your pitch online
Cons:
- – You’ll need to create materials that pitch your business and how you’ll use the funds
- – The platform or individuals lending capital may request that you’ve invested in your business
- – It may take many months to achieve the amount you need
Non-profits
While many non-profits provide grants, there are some organizations that also provide small business loans. Most non-profit loans focus on providing funds to specific segments of the small business market. In 2024, many non-profits’ loans are tied to the demographics of the owners or the customers that the business serves. If you can find a non-profit that supports your business’ goals or your profile as an entrepreneur, non-profit loans may be a good solution.
Pros:
- – Can provide start up or newer-business capital
- – Non-profit organizations can provide other types of support beyond a loan
- – Entrepreneurs can engage with similar types of businesses and owners
Cons:
- – Not available for all types of businesses
- – Availability of loans may not be consistent
- – Loan amounts may be smaller than other types of financing
No SBA?
It’s a common misconception that the SBA is a lender. The SBA provides access to government-backed loans through other lenders, like the groups listed in this article.
The SBA itself is not a lender, so while the SBA provides tools to help you find groups who can help you secure an SBA loan, the funds are not sent from the SBA itself.
The SBA itself is not a lender, so while the SBA provides tools to help you find groups who can help you secure an SBA loan, the funds are not sent from the SBA itself.
How do you know what group can best help you secure capital?
Finding a trusted organization that can help you evaluate your loan options can be difficult. It’s one of the reasons NEWITY was founded – to simplify access to capital.
At NEWITY, we’re here to help:
- – We’ll always try to match you with an SBA 7(a) loan, which provides some of the lowest interest rates available to businesses.
- – If you don’t qualify for an SBA 7(a) loan, we’ll match you with a competitive loan for your business. Plus, we’ll only share your information with an alternative loan provider if you’d like to proceed.
- – If you receive a loan from another lender, even if outside the NEWITY platform, we can help you refinance your debt with an SBA 7(a) loan. For eligible businesses, refinancing high interest rate debt can provide meaningful savings.
If you’re ready to see how much capital NEWITY could help you receive, create a NEWITY account and submit our 10–minute pre-screen application. The application is risk free and doesn’t impact your credit score.