Personal Loans

Find a Small Business Loan for Your Post-Pandemic Venture

Want more control over your career post-pandemic? Here's what you need to know to successfully finance and start a small business.
A young entrepreneur sit at a desk while working at her small business
By Gina Freeman
Posted on: November 23rd, 2021

It’s no secret that there’s a labor shortage in the U.S. According to the most recent data from the United States “Job Openings and Labor Turnover” (JOLTS) report, over 4.4 million employees have quit their jobs since the pandemic began for various reasons — concerns about safety, lack of child care, and not wanting to return to the office after working from home. However, many aren’t returning to their jobs because they started new businesses.

In fact, Americans have filed over 1.4 million new business applications in 2021 through September, according to a report from the Economic Innovation Group (EIG). A recent survey by Digital.com found that about one-third of employees who quit jobs did so to start new businesses. If being your own boss appeals to you, consider joining the ranks of the self-employed with a good plan and the right small business loan.

Start With a Business Plan

Before quitting your job, determine what sort of business you want to create — will you become a consultant in your current field or start something new? Do you just need to clear some office space at home, or will you require equipment and retail or warehouse space? Do you have the necessary expertise, or will you need to invest in training?

Scope out the competition. How many competitors will you have? How much do they charge? What can you expect to earn once your enterprise is off the ground?

Understand your market. Who do you want as your customers? How will you attract them? What’s your networking, advertising, and marketing strategy? Will you do it all yourself or outsource some functions?

Estimate how much money you’ll need, both for your business needs and to replace your employment income while you establish your new company. Most new business failures occur because their owners underestimate the total startup costs.

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Don’t Quit Your Day Job (Yet)

There are advantages to starting a new business while you’re still employed.

  • There is less financial pressure to take on low-paying jobs or sketchy clients.
  • You have time to see which ideas work and which you should scrap.
  • You’ll have more time and money to invest in training and professional development.

Keeping your job and treating your business as a side gig (at first) lets you avoid the anxiety of those first few weeks or months when your business income has not yet replaced what you earned from your job. You can also learn what self-employment is like without risking your career if the business doesn’t work out.

You’ll also be more prepared for entrepreneurship. Set aside some of your earnings to increase your working capital, or take classes after work to acquire the financial management, marketing, or other skills you’ll need to be successful.

Line Up Your Financing

Very few entrepreneurs get their money from Shark Tank or other investors. So you’ll probably need to line up some financing. You should note that it’s very risky to completely empty your savings and sell your assets because many businesses fail. You don’t want to find yourself unemployed and broke if yours is one of them.

According to the Kauffman Foundation, these are the most common sources of financing for startups:

  • Loans: 34.9%
  • Personal Savings: 30%
  • Friends and Family: 6.3%
  • Credit Cards: 6.2%
  • Investors: 10.2%
  • Government: 2%

Some of the most popular loans for startups include SBA loans guaranteed by the Small Business Administration and unsecured personal loans. Here’s a quick rundown of their pros and cons.

Small Business Administration (SBA) Loans

What is an SBA loan? It’s financing to start a small business or help established firms cover ongoing costs like inventory. To be eligible for an SBA loan, a business must be:

  • Registered and a legal for-profit enterprise.
  • Physically located and operating in the U.S. or a U.S. territory.
  • The borrower must invest their own time and/or money.
  • The borrower must show the inability to secure funding from another financing institution.

There are three main types of SBA loan:

  • SBA Advantage Loans 7 (a) — a loan underwritten and funded by a private, SBA-approved lender that’s simply guaranteed by the agency.
  • 504 or Certified Development Company (CDC) loan — a loan to help business owners purchase buildings, land, or equipment.
  • Microloans — smaller loan amounts of up to $50,000 focused on underserved borrowers like women, minorities, and low-income applicants.

SBA loans are not made by the government; the government guarantees a portion of the loan, which makes it less risky for lenders and opens up more financing opportunities for business owners.

Pros and Cons of SBA Loans

Small business loans are great business startup loans for many types of entrepreneurs. They offer significant advantages over other kinds of financing.

However, SBA loans aren’t for everyone. For one thing, if you can qualify for a business startup loan from another institution, you won’t be eligible for an SBA loan. The pros and cons of SBA loans include:

Pros Cons
Flexible underwriting may help you get approved more easily. The SBA usually requires a down payment.
Interest rates are capped. You may also have to come up with collateral to secure the loan.
A wide range of loan amounts is offered, from $500 to $5.5 million. You are personally liable if the business goes under, and the U.S. Treasury Department can come after you to collect. However, SBA loans can be discharged in some cases.
SBA resource centers can help you navigate the process. The approval process can be slow — up to two months.

 

Assuming that you’re eligible to apply for an SBA loan, it still might not be the right loan for you. Fortunately, SBA loans are not the only option. Unsecured personal loans come with a different set of pros and cons that might be more workable for you. You can compare several and look for the terms that make the most sense for your business goals.

Personal Loans for Business Startup

What is a personal loan for a business startup? Personal loans are usually unsecured, which means the lenders do not require you to pledge any assets as collateral. You can use a personal loan for nearly any legal purpose, including a business startup.

Personal Loan Pros and Cons

If you want your money quickly and with few hassles, a personal loan business startup loan could be the fastest option. And if your credit rating and income are excellent, the personal loan could also be your cheapest choice.

Personal loans can even be used in conjunction with SBA loans — to increase your working capital, for instance, or provide emergency funds. You can even use a personal loan to finance your SBA loan down payment. The pros and cons of personal loan for small businesses include:

Pros Cons
If you qualify for a large enough loan amount, you can finance your entire business with no down payment. Interest rates are higher and qualifying is harder if your credit score or income is low.
You won’t have to pledge collateral because the loans are usually unsecured. Repayment terms may be shorter than those of SBA loans.
The underwriting-to-funding process usually takes just a few days. Maximum loan amounts are capped — usually between $35,000 and $100,000.
Paperwork is minimal — you don’t have to submit a business plan.
Interest rates are usually fixed and very low for highly-qualified applicants.

 

When starting a new business or expanding an established one, it’s smart to consider both personal and SBA loans before choosing the best product for your enterprise.