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Like the saying goes, “The only things certain in life are death and taxes.” Unfortunately, small businesses know this saying all too well.

Unlike employees who look forward to their refund every April, small businesses loath the approaching spring, knowing they will have to pay Uncle Sam its share of their profits. Each year, small businesses struggling to turn a profit in an increasingly competitive business environment must pay taxes in order to keep their doors open.

With dwindling profit margins and tightened lending restrictions, however, many small business owners find themselves between a rock and a hard place when it comes time to pay the tax man. Although a business may have steady sales and revenue or thousands of dollars in inventory, banks and traditional lending institutions simply aren’t handing out small business loans like they were in year’s past, leaving small business owners with few funding options to pay their tax bill.

Thankfully, peer-to-peer lending, or social lending, has solved this growing dilemma. These modern social lending marketplaces have connected millions of borrowers with individual investors. Borrowers receive low-interest, fixed-rate loans that can be paid off in two to five years, while investors are able to benefit from decent returns in an economy with sinking bond and savings rates.

Thus, it’s a win-win situation for both small business owners in need of immediate funding and investors looking to make a small profit while helping others.

From Desperation to Exultation: One Man’s Venture into Peer-to-Peer Lending

John Mitchell is an Ohio-based small business owner who found himself in such a predicament just last year. As the owner of the only hardware store in a small town, John’s store flourished the first few years it was open.

After getting his inventory levels, pricing models, and management just right, he decided to expand his business by opening a second location in a neighboring town. John sunk all of his profits into opening his new store, which meant he was short on funds come tax time. However, knowing the success of his business, he thought he would simply get a small loan from the bank that housed his accounts and provided him with the initial loan he used to launch his business four years earlier.

Unfortunately, he witnessed first-hand the effect the recession has had on lending regulations as the banker he’s known for years denied his loan application. If he couldn’t get a loan there, where could he?

On the brink of despair, John took to the Internet to research loan options. After digging through forums and trying a few different searches, he ran across peer-to-peer lending. In less than a week after going through the quick and easy application process, he received a personal loan at a low rate for the amount he needed. A week later, John sent a check for the full amount to the IRS, and less than eight months later, he was able to pay off the loan with the profits from his new store!

If you are a small business owner who has found yourself in a similar circumstance, peer-to-peer lending can do the same for you as well, but how does peer-to-peer lending work?

How Peer-to-Peer Lending Works

A breakthrough product or service emerges every generation, and in the early 2000′s, the emerging breakthrough was social networking. From helping in the organization of overthrowing political regimes to staying in touch with friends and family members, social networking has had a profound effect on our daily lives. Now, it’s changing the small business financing landscape as well.

Peer-to-peer lending is a modern social networking solution for small businesses in search of a way of securing alternative funding. The goal of peer-to-peer lending sites, such as Prosper and Lending Club, is simply to connect individual investors with those in need of funding, and these sites are becoming an increasingly useful tool for small business owners who are unable to secure funding from traditional lenders.

Rather than jumping through endless hoops only to be denied by a bank, small businesses can receive funding via peer-to-peer lending in no time at all by following three simple steps:

Step 1: Create a Profile and Loan Listing

There are a myriad of peer-to-peer lending networks to choose from, so your first step is to research the best ones and create a profile and loan listing on the site you choose. The loan listing is essentially a cost-free ad that indicates the amount of money you need and your desired interest rate.

Step 2: Let the Bidding Process Begin

After your listing goes live, investors have the opportunity to begin bidding on your listing, providing you with the interest rate and loan amount they are willing to offer you. A major advantage of this bidding process is the fact that it can intensify as more and more lenders begin competing for your business.

When this happens, interest rates will begin dropping, potentially allowing you to obtain a much lower interest rate than you expected. It’s important to note, however, that your credit score, income, and debt-to-income ratio plays a role in the lending decision process.

Step 3: Funding and Paying Back the Loan

Another benefit of borrowing from peer-to-peer lenders is that you can accept several bids to receive your requested loan amount. For instance, if you ask for $10,000 in your loan listing to pay your business taxes, you can acquire the amount from collecting $2,000 from five different borrowers.

This makes it much easier for borrowers to receive the money they need. However, instead of making five separate payments, you would only make one payment, because the peer-to-peer lending site is responsible for dispersing the money to lenders until loans are repaid in full. They simply charge a small fee for this service.

With increased lending regulations, banks are tightening their purse strings more than ever before, making it much more difficult for small businesses to receive the funding they need to expand their business or even pay their taxes. Thankfully, peer-to-peer lending has proven to be a worthy competitor in the small business lending marketplace. If you are a small b

Now, when we talk about small business loans, we mean just that – small business loans. We are not talking about a $1 million loan to purchase some commercial real estate or $500,000 to buy some investment property. We are not talking about a $3 million credit line just to show capital on a balance sheet. And, we are not talking about a $250,000 equipment loan for a regional construction company.

We are talking about true small business credit – loans under $150,000. Capital amounts that the 22 million small businesses in this country could use at some point in time for working capital, to renovate their location, purchase inventory, marketing, meeting payroll, developing new products or to simply have the capital on hand to acquire and satisfy customers (what business is really about).

But, we have heard ad nauseam that banks are just not lending to small businesses – claiming there is too much risk in smaller firms. So, many small companies are not even applying for credit anymore out of fear of being turned down. And, as a result, we are seeing small businesses not reach for or obtaining their full potential – essentially letting profitable opportunities slip by.

However, just because banks don’t see the true value of small companies, that does not mean that others don’t – others who are willing to do what they can to fund your business.

The Benefits Of Small Business

There are some 22 million small businesses in the U.S. and they are quite the power house.

According to the Small Business and Entrepreneurship Council, small businesses;

Provide two-thirds of all new jobs in the nation.
Contribute almost 50% to our Gross Domestic Product.
Account for 97.8% of all exports. And,
Create 16.5% more innovation than larger firms.
All items that help make America the country that it is.

But, if banks think these firms are too risky, that is OK, because given the entrepreneurial spirit in this country, other financing firms (lenders) are stepping up to cover the small business loans that banks and traditional lenders will not. So now, you don’t have to be afraid of being turned down anymore.

3 Sources That Will Fund Your Small Business

1) SBA Loans: Sure, SBA loans have to go through banks – which are not lending. However, banks might not be lending for their own loan portfolios but they are lending under the SBA’s programs.

Did you know that over the last three years, the SBA has been growing the number and dollar amount of the under $150,000 loans they back – even given that banks (who originate these products) are not approving them?

From the latest SBA data;

In 2012, the SBA guaranteed 14,520 under $150,000 loans for a total loan amount of over $802 million. In 2014 (two years later), the SBA increase the number of these loans to 16,043 with a total volume of $955 million – with a down year in 2013.

Part of this increase is the fact that the SBA has reduced or waived its fees on these smaller loans. From the SBA’s website:

“The SBA determined to eliminate the fees on loans of $150,000 or less after conducting a review of the 7(a) Loan Program. As a result, a small business owner obtaining a $150,000 loan will save more than $2,500.”
Bottom line – the SBA is actually doing what it can to fund small businesses in this country – including yours.

Programs to look for:

The 7(a) program offers nearly any business loan under the sun from working capital to commercial real estate.

The CDC/504 program only focuses on real estate and equipment lending. But, if your business needs either one of these under the $150,000 amount – including renovating your location – then by all means as this is a great program.

And, the express program – which is capped at $350,000 – is a great program. Quick and easy access to needed capital.

Now, for some quick benefits of SBA loans. The SBA’s guarantee does several things:

By capping interest rates and fees, these products tend to be cheaper in the long-run for the borrower.

Lower down payment requirements – meaning that you can keep more of your own money in your own business.

Long loan terms also allow payments on these facilities to be more affordable. Just image which loan payment would be easier to make on a $100,000 loan at 10% interest. A bank may require the loan to be repaid in 36 months – making the monthly payment $3,227. While the SBA could extend the term to 6 years (72 months) making their monthly payment $1,853. The lower the payment amount, the easier it is to cover with current cash flow, making the overall loan less risky and easier to get approved.

Express programs can significantly speed up funding as some traditional business loans can take months to close while those under the express programs can be funded in the matter of weeks.
If you have been fearful of applying for a SBA loan, knock it off and go apply!

2) Alternative Lending: Alternative loans (non-bank loans) from factoring and business cash advances to revenue based loans have really picked up steam over the last 5 plus years.

These lenders are focused solely on small businesses and as such have created products that allow them to approve more loans to companies that traditional lenders will not touch – by not using old and outdated underwriting standards but by focusing more on technology.

Most alternative lenders – especially the leaders in this space – have seen their loan volumes (thus their approval rates) – increase by 150% or more year after year.

A couple of examples: According to the SBA, their largest lender – Wells Fargo – approved and funded just over $266 million in small business financing last year. However, OnDeck Capital, a leading revenue based lender, nearly doubled that amount over the same period. Further, CAN Capital claims to have funded over $800 million in 2013 – far out pacing even the top 100 SBA lenders combined.

While these loans are high-cost loans, they offer several benefits like approvals when other lenders say “no” as well as quick (in the matter of days) funding.

3) New Players: Peer-to-peer lending is know for its ability to match regular people who have extra money to lend with regular people who need to borrow. These loans are typically personal loans that can be used for nearly any purpose – like starting or growing a small business.

However, just this year, Lending Club – the leader in P2P lending – has begun to offer a true small business loan product where businesses can borrower anywhere from $15,000 to $100,000 at low rates. And, their approval and funding is not based on some standard cookie cutter formula that most businesses just do not meet but comes from regular people who listen to your story and decide for themselves the merit of your financing request.

Conclusion

Capital for your business is still available.

Don’t always believe what you hear. Sure, small business lending is tight – when comp