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Nick and Jennifer Godfrey had several things working to their advantage when they opened up their hair salon in 2006. Business was good and larger projects could easily be financed.

“Prior to 2009, I could walk into a bank and get a loan the same day,” Nick says. “Then in 2009, I couldn’t get the banks to talk to me about a loan. The same banks I had visited on a regular basis changed their requirements, stipulations were a lot tighter and open lines of credit went from $50,000 to $10,000.”

The bank’s tighter purse strings coincided with a decline in the salon’s business. This would have been disastrous had Nick not sought out viable loan alternatives, eventually borrowing from a commercial lender that he later befriended.

Since government-backed programs that were part of the 2008 stimulus package expired, banks have become more stringent in their small business lending practices. This crackdown, according to George Harrop, managing partner of CapitalSource’s Small Business Lending Group, is expected to continue until Congress passes a currently stalled $42 billion bill designed to reinstate expired loan guarantees. 

Fortunately, banks aren’t the only source of funding for existing and potential small businesses.

“There are many attractive options to get financing that people can look into,” Harrop says. The key phrase, however,  is “look into” since business owners must ensure that they’re borrowing from a credible, non-predatory lender and not, for example, a loan shark.

The easiest way to get in touch with these accredited lenders is to contact the Small Business Administration, an independent agency of the federal government that counsels small business owners.
In fact, according to Ann Dresch, a spokesperson for the SBA, about 80% of all loans made through the SBA are currently backed by non-bank lenders.  Much of this funding is provided through regional, state and government grants programs. Another portion of it comes from small business investment companies, private lenders who work in tandem with the SBA.

The SBA’s process for facilitating these loans is highly localized. Dresch, the Montana Small Business Development Center State Director, oversees 10 counseling centers within her home state. These centers help fledgling and existing business owners develop a business plan, manage their finances and secure additional funding.

Financial options vary depending on location. For example, an owner in Montana belonging to a local Native American tribe can apply for a $7,000 grant to fund his or her startup or expand a business under the Indian Economic Development program. Similarly, a small company can receive up to $150,000 to fund a project that “adds value to the agriculture industry.”

Montana’s SBDC brochure lists a total of 18 business resources. The idea is to put qualified borrowers in touch with compatible lenders who have proven track records in their communities.

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“The program is a cooperative effort of the private sector, the educational community and federal, state and local governments,” Cecelia Taylor of the SBA Press Office says.

Universally, the SBA works with private organizations through its guaranteed loan programs. The 7(a) program, designed for both startup and existing small businesses, delivers financing through commercial lending institutions for general business purposes. The Microloan Program provides short-term loans of up to $35,000 for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment and the CDC/504 program provides long-term, fixed-rate financing to acquire fixed assets (such as real estate or equipment) for expansion or modernization.
Loans made through these programs are backed by the government so private institutions who lend through them are regulated, according to Barry Sloane, CEO and Chairman for Newtek Business Services, one of the non-bank lenders licensed through the SBA. These lenders are subjected to annual audits and their interest rates are capped.

Those who don’t want to rely on the SBA for options should know there are other viable private lenders out there. Cutting out the middleman, Harrop says, is fine as long as you’re willing to do the research.“You have get online and Google these places,” he says.

Mark Lehman, a spokesperson for SCORE, a nonprofit association that counsels small businesses, points out alternatives business owners can pursue besides commercial lending.

“It really depends on what your needs are,” he says, ”how much money do you need? What exactly do you need it for?”

Both Lehman and Harrop said existing businesses should talk to people with whom they already have established relationships should they need a financial backer. This includes current vendors and suppliers as well as friends and family.

“The catch with [borrowing from friends and family] is that you absolutely need to make it legal,” Harrop says, a process that can actually be a lot simpler than you might suppose. Many websites, such as, run by a group of attorneys, specialize in generating routine legal contracts with relative ease.  

And then there’s this option: “One bank turns you away, but another might accept you,” Lehman says.  “We say, if you can’t get the first girl to kiss you, try to get the second.”

How exactly can you score? Check out this MainStreet article on how to get a small biz loan for some suggestions.

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