How to get a small business loan in Philly

You don’t need to be a finance wiz to get a small business loan in Philly, but you do need to be organized.

Getting a loan takes a lot of administrative work: preparing documents, speaking with lenders, and filling out applications over the course of weeks to months. It can be overwhelming to say the least — especially if you’ve never done this before.

For starters, you need a lender. From your own bank to some of Philly’s nonprofit financial institutions, there’s a list of options you can exhaust to try and secure money for starting, growing or improving your business. And many lenders will guide you through the process and try to help you meet your goals.

So, let’s breakdown what a business loan is and what the options are in Philly.

A business loan is when a for-profit business owner borrows money from a financial institution or lender in order to start, expand or improve their business. These loans require a person to understand how much money they need, what they intend to use it for, and how the business will be able to pay the lender back.

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There are private business loans, often from a traditional bank or financial institution, which can be considered “non-backed loans” because they’re not supported through government money. This is riskier for the lender and can be harder for business owners to secure because of the eligibility requirements.

Then there are public business loans, which are supported through government money. These loans are provided through a network of financial institutions that work with the federal Small Business Administration (SBA) or state and local governments. A common public business loan is an SBA-guaranteed loan. The SBA promises to pay a portion (typically 50 to 90%) of a loan so that in the case of the business owner not being able to pay it back — the SBA will cover the portion they promised to the lender.

There are loans from nonprofit lenders, which leverage private and public partnerships to provide loans to small businesses in their area. Many are SBA-approved lenders.

There are also online loan lenders, but experts we spoke to encourage finding a lender you can physically meet with and don’t have to pay a premium for a loan. Online lenders usually have the fastest approval and turnaround, but often have high interest rates and don’t offer as much guidance or personal interaction.

Interest rates are calculated through a variety of factors, like the loan amount, your financial history, and personal qualifications. In 2022, SBA loans have interest rates between 7.75% and 13.5%, and traditional business loans have an interest rate between 3% and 7%, according to Lending Tree.

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Plenty of paperwork that outlines how much money your business has, what assets you own, and other financial statements. Lenders may have different requirements, so it’s best to check with the lender first.

Here’s generally what you’ll need:

Before you start, check with your own bank for a loan. It’s best to try institutions you already have a relationship with. There’s one of three ways it can go: you get the loan, you’re denied the loan, or you can see if the bank will agree to work with the SBA to provide you a loan.

If your bank approves the loan or agrees to work with SBA to provide you one, you’ve got the process started. Nice work!

However, if your bank denies the loan, ask them why they denied it. Under the Equal Credit Opportunity Act, a lender is required to give you the reasoning behind denying the loan, if you ask within 60 days of the loan being denied. Get the reasoning for your loan denial so that you know what you need to improve on, whether that’s your debt-to-income ratio or credit score.

Prepare to look for a lender elsewhere with this in mind. You can search for lenders through verified search tools, visit a local business resource center in-person or contact community-based organizations near you.

These tools are provided by the SBA, public-private partnerships in Philly, and the national network of Community Development Financial Institutions (CDFI). Remember applying through these tools doesn’t guarantee you a loan, but it will connect you to potential lenders who can give you one.

These centers can provide referrals to lenders and help you with wrap-around services like business planning, administrative tasks, workshops and training.

Small Business Development Centers (SBDC) are statewide resource centers for business owners looking for help with a plethora of business needs, including help with finding a loan. While SBDCs do not always provide financing or loans themselves, they can help you develop business strategies and find lenders in your area. In the Philly region, Temple University and Widener University have SBDCs. You can apply for free business counseling online.

Community Development Corporations (CDC) are nonprofit organizations that provide services to communities around housing, employment, businesses and more. You can learn more about business loans or find referrals to other places that can help. Here’s a list of CDC small business resources.

The Philadelphia Inquirer is one of more than 20 news organizations producing Broke in Philly, a collaborative reporting project on solutions to poverty and the city’s push toward economic justice. See all of our reporting at brokeinphilly.org.