How to Garner Small Business Financing in a Dour Economic Climate

These are, without question, the worst economic times the country has faced in a very long time. And, especially given that the nature of this “Great Recession” was fueled in large part by a runaway credit bubble that eventually collapsed in on itself, it is little surprise that many people and businesses with good credit are finding it difficult to obtain financing for a variety of reasons. Whether your revenues are up or down, a loan at the right time can be just want your small business needs to take advantage of a growth opportunity, or to weather the current fiscal storm that is ravaging so much of the world’s economy.

One of the problems stems from the fact that banks and lenders are sitting on liquid money because they are deathly afraid of further economic contraction, coupled with the fact that there may still be a glut of foreclosures in the offing. Remember, all of those five year ARMs are one of the root causes of this bubble, and the peak year for signing ARMs by suspect home buyers was 2006. And those buyers in 2006 were among the shadiest, and the no look loans that they took out were among the worst both structurally and documentation wise. And then, of course, add five years to 2006 and what do you get?

That’s right, a fairly bleak home market and lending forecast for the year 2011.

With that said, though, there are a number of ways to obtain financing, but be forewarned that it will cost borrowers, even those with great credit, substantially more in interest than it ordinarily would. Also, there are number of government loan programs available, but depending upon your situation, that may be a worse proposition than taking out a high interest private small business loan.

And, remember that in hard economic times like this, do not take out financing to meet basic operating expenses such as payroll, operation costs or production costs. Use financing for expansion purposes, to purchase new equipment that will streamline the operations of your business, or if you can find a low enough interest rate, to transfer existing debt.

If you find that you need a loan to cover operating costs, strongly consider slashing your operating costs instead. Because, if business does not pick up, and I point to the 2006-2011 ARMs point referenced above, you will not only be stuck with the same bad financial situation that you are in now, but you will have the added costs of servicing the loan.