In many ways, New York is an ideal state for starting, operating, and growing a small business. New York State is a slice of the United States as a whole. It contains massive metropolitan areas, vast tracts of rural areas, and a host of funding options set up to keep business owners in the state.
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According to the United States Small Business Administration, New York’s 2.3 million small businesses employ 4.1 million people, a workforce approximately the size of the entire population of Oregon. That means that just about half of the people employed in New York are working for a small business.
Long story short: New York is a fantastic place to operate a small business, whether you’re opening a restaurant in Red Hook, Brooklyn or a forestry company in Allegany. And there are as many different business opportunities as there are ways to fund them.
New York Business Loan Overview
The business loan environment is gigantic, particularly in a state like New York, which has the third-highest GDP of any state in the country. When you’re deciding exactly which loan to seek out, you should ask yourself three important questions: how much money do I need? How am I spending it? And how likely is a financial institution to lend me money?
How Am I Spending the Loan Money?
Most institutions will want to know how you will spend your loan capital. What does your business need, and how does this loan solve that need? Are you looking for a significant sum in order to make a hiring push? Is there a new piece of equipment you need in order to increase income? Is this money needed for working capital? Are you a startup in need of getting your first office or storefront?
Your business plan should be able to help answer all of these questions. Any lender will need to know your plan for this new cash flow, and having specific answers for where the money’s going and how it will affect your revenue going forward will be key to ensuring your business funding is sufficient for growth.
How Much Do I Need?
Once you know how you want to spend, you should decide on the optimal loan size. There are some obvious missteps possible here, of course. You don’t want a large loan when you’re only looking to finance a smaller expenditure. But you need to be aware of your needs and borrow enough to cover your expenses. There is peril in borrowing too little.
Lenders do not lend for free. Any money you borrow will be repaid with interest. So the optimal size of the loan is large enough to comfortably finance whatever expense you’re looking to take care of while being small enough to keep interest from crippling future cash flow or additional financing options in the future.
Why Would a Lender Lend to me?
If you think about it, funding a business is a bet for any business lender. They’re betting that if they give you a particular amount of money, you’ll be able to repay them with interest, making everybody money in the process. The safer of a bet you are for the lender, the lower your interest rates will be, and the less money you’ll have to spend to build your business exactly the way you want.
So what can you do to prove that you’re a safe bet? Well, the simplest thing to do is to boost your business’s credit score. A credit score is effectively a way of putting a number to your likelihood of repaying debt. If you’ve got bad credit, lenders will see it as less likely that you’ll be able to make all of your payments on time and in full. It’s riskier for them to approve your loan application, and if they do approve your application it’ll likely be for less money at a higher interest rate.
Much like your personal credit score, there’s several factors to the calculation. These include the size of your company, the size of existing debt, missing payments, the company’s rate of credit utilization, the length of the company’s credit history, and ratio of debt to income. So before you apply for a loan, examine whether you can improve any of these factors in order to show lenders you’re a smart bet.
Types of Small Business Loans
Once you’ve answered those questions, have a look at all the different types of loans available and decide which one fits your answers best.
These loans are the simplest loans to conceptualize because they’re exactly what you think of when you imagine a loan. The financial institution approves the borrower for a particular sum of money. The borrower makes monthly payments until the financial institution is repaid in full, plus an agreed-upon interest rate. Repayment terms often last years and can have interest rates that range wildly based on the size of the loan, your creditworthiness, and other factors. Term loans are often used for larger expenditures due to the length of time given to repay them.
Short Term Loans
Particularly helpful for smaller or newer businesses, short term loans are a form of business financing that functions in the same way as a long term loan on a smaller scale. The loans tend to be smaller, interest rates higher, and repayment terms tend to last under two years. Because the loans are smaller, they often will have less stringent requirements for borrowers.
SBA loans are term loans guaranteed by the United States Small Business Administration (SBA). Because the government is backing up these loans, they’re less risky to the lending financial institution and are thus typically offered with lower interest rates than other options. There are short and long term SBA loans, and are in many cases the best business loan available. They can be gigantic (over $300,000), and have interest rates as low as 2.25%.
However, because the SBA is guaranteeing these loans with taxpayer dollars, they’re tough to qualify for. Credit must be excellent, and your company must have a track record of making money. If your company fits the criteria, though, the SBA loan program is an excellent option and can be your cheapest way to acquire a large amount of money.
If you’re going to spend your loan money on upgrading a piece of necessary equipment, you should look into equipment financing. These loans are secured loans in which the borrower holds the financed equipment as collateral. If the borrower is unable to repay the loan, the lender will repossess the equipment and resell it, protecting them from undue risk. Unlike other loan options, equipment loans are only to be used on upgrading, replacing, or buying new equipment. If you’re looking for more flexibility in expenditures, these may not be your best option.
Business Lines of Credit
A business line of credit operates similarly to a credit card. The lender approves the borrower for a maximum borrowing limit at a particular interest rate. The small business owners then only pay back and owe interest on whatever is spent under that limit. These are excellent options to acquire if you’re in a position with excellent credit, as you can hold them in reserve for times of emergency or short-term opportunity.
Merchant Cash Advances
A merchant cash advance (MCA) is by definition not a loan, and is thus not held to many of the rules and regulations that loans are held to. In an MCA, the lender purchases a share of future credit and debit card sales. Instead of an interest rate, MCAs are repaid using a factor rate, which is a number typically between 1 and 2. The factor rate is multiplied by the total advance size, and that new number is the amount which must be repaid. If you receive an MCA of $100,000 with a factor rate of 1.2, you will repay $120,000. Because these payments are made in every single credit card and debit card transaction, they can stifle your cash flow more than other lending options, but payments do get smaller when sales are slower.
Finally, there are online lenders like iCapital Funding. These lenders are typically able to offer a wide variety of lending options due to their nimble nature. Online lenders can offer long term loans, equipment financing, even microloans, and are often able to do so very quickly. iCapital, for example, can get you funding with 24 hours of approval.
New York State Resources and Lending
There are also numerous programs and opportunities offered to New York Small Businesses by the state itself and many of the localities therein. Whether you’re looking at equipment financing, SBA loans, or an MCA, many of these options can be augmented by going through a lender from within the state itself.
State Lending Programs
The state of New York itself hosts a robust site full of resources to help with small business development. Those resources include a directory of Community Development Financial Institutions (CDFI), which are lenders dedicated to local small business owners. Other resources include technical assistance programs, help with certifications, and consultations with entrepreneurs looking for some training.
There are also several loan programs offered through New York’s Empire State Development program.
Job Development Authority (JDA) Direct Loan Program
First, there’s the Job Development Authority (JDA) Direct Loan Program. These loans are real estate based. They’re offered to businesses looking to buy, renovate, or build a building for use in manufacturing, warehousing, or distribution. These loans are typically meant to supplement a bank loan, and can be up to 60% of a project’s budget when the project is located in an economically distressed area. JDA loans can also be used to fund equipment.
Global NY Loan Fund
Next, there’s the Global NY Loan Fund. As its name implies, this program is meant to help New York’s small business export their products around the world. Newer businesses are able to apply for up to $100,000 in export funding, and older, more established businesses can apply for up to half a million. There’s also a program within this one that helps alcoholic beverage businesses export their products with interest-free loans of up to $50,000.
JDA Agriculture Loan Fund
New York is a gigantic state, and agriculture is a massive industry statewide. For small businesses operating the agricultural field, there’s the JDA Agriculture Loan Fund. This program allows for small agricultural businesses to fund projects in order to grow and expand. Loans have been approved up to $2 million.
Regional Revolving Loan Trust Fund
Finally, there’s the Regional Revolving Loan Trust Fund (RRLTF). This fund uses state money to fund loans offered by numerous nonprofit organizations throughout New York State. These loans are substantial – up to $100,000 – and are meant to fund projects that lead to job creation, renewal in economically distressed parts of the state, or opportunities for businesses owned and operated by historically disadvantaged populations.
Local Lending Programs
In addition to the programs offered by the state, there are several lending options for businesses operating in New York City specifically. If you’re an NYC small business, you may want to consider a combination of state and local resources to help fund your business.
New York City Economic Development Corporation
The New York City Economic Development Corporation is a group dedicated to investment ij companies working to help downtrodden parts of NYC. They offer educational and networking resources in addition to striving to connect small business lenders to companies in need of additional capital. They also offer specific funding options themselves, which can be found here. There are investment solutions, tax benefits, and other financing options to be found for businesses just starting up, growing, or looking to move to NYC.
New York City helps capitalize WE Fund, which exists to help women entrepreneurs find capital. Approved borrowers can see up to 10% of a crowdfunding goal, while other programs work to incentivize private lenders to approve loans for women.
What You Need to Apply for Small Business Funding
Once you’ve decided what you’re funding, how much you need, and where you’re going to apply, you’ll need to gather all of the necessary paperwork to submit the application. The list is extensive, so it’s important to make sure that you’ve got everything you need to ready to go when it’s time to apply. These documents vary by type of loan and include, but are not limited to:
Business registrations and licensing
Personal credit report
Information about existing debt
Accounts receivable and payable
Articles of Incorporation
Real estate leases
Financing and Business Loans in New York
So that’s it! There are a ton of possibilities when you’re running a business in a state like New York. Having a firm idea of your needs, your business’s needs, and the possibilities offered by the state can lead to an excellent lending experience that sets your company up for years of success.