The financial crisis which hit the US in 2008 made it harder for small businesses to obtain loans from banks. Even now that small business have risen from the doldrums, startups feel like they’re going through the eye of a needle when applying for a bank loan.

Lenders will always look for credit history as this gives clues on a potential borrower’s paying capacity. Without it, they can’t gauge if you are capable of paying back the money lent to you, including interests. Bankers are not investors thus, they are more concerned with promptly collecting what’s due and demandable.

Business reportGiven this scenario, what’s the best option for small business start-ups? A good number of small and medium-scale entrepreneurs (SME) initially fund their business using their own savings. Some, approach friends or family for funding. Others raise capital by doing odd jobs or renting out a spare room.

If you don’t have ready access to these “interest-free” funds, the following are practical alternative sources:

Financing program for niche markets

New financing programs targeting specific niche markets have mushroomed. For example, giant local food producers are extending credit to SMEs engaged in manufacturing food items using homegrown products. The average interest rate under this program is up to 9 percent per annum.

In-house financing from franchises

A lot of franchise owners are reaching out to potential franchisees by offering in-house financing schemes. A firm selling hardware tools to DIY shops through a network of distributors launched an in-house lending scheme. The scheme allows qualified SMEs engaged in the hardware business to borrow funds for working capital plus purchase of inventory.


Another practical way of obtaining a loan is to approach non-profit, micro lenders. These groups are mostly individuals willing to lend small amounts of money to SMEs starting up or wanting to expand. A typical micro lender based in San Jose said that they’re processing an average of $1.5M worth of loans a month. Typical loan values range from $30,000 to $60,000 at interest rates starting at 6.8%.


If you meet standard bank loan requirements for SMEs, including presentation of credit history or ratings, SME loans expert Patrice Lombarde advises feeding your loan officer with all the relevant data he’ll need. Demonstrate why your business isn’t a high-risk investment without sounding pretentious. Be transparent enough about the challenges you face but be specific on how you’ll face up to these.

Illustrate your business model and supply him with data, proving that it has worked for you through the years. Prove that sales have been satisfactory and the majority of receivables are current.

You should be able to sell your business as well as yourself. Provide a CV, references, successful businesses owned, past loans paid on time, paying off some personal loans and maintaining good credit standing are plus points.

Try to follow these pointers and up your chances of obtaining positive responses from potential creditors.