Comparing Loans for Small Businesses in Florida: Local vs SBA vs Online Lenders

Florida has millions of small businesses, which accounts for a large percentage of all the businesses in the state. The employment, tourism, construction, healthcare and trade that take place in Florida are all driven by these businesses. However, access to capital is one of the challenges faced by a small business in Florida at every stage of the growth cycle.

Selecting among small business loans in Florida can be challenging because there are many options available for comparison. Business owners typically compare local banks, SBA-backed loans, microlending services in Florida. However, there is often very little guidance available to new business owners on which type of financing option best meets their individual business need.

This article provides a comparison of common funding sources for small business in Florida. The intent of the article is not to advocate for a single lender, nor to recommend any one specific loan product, but instead it is to educate borrowers on how different options work, who the intended borrower is, and how to successfully navigate the application process.

Are Loans for Small Businesses in Florida Different?

Florida has a distinctive economy with certain aspects affecting how companies finance themselves. Florida has a very high concentration of the following types of businesses:

• Tourism and hospitality businesses

• Construction and real estate firms

• Healthcare and professional services

• Logistics and international trade companies

Seasonal business fluctuation has been very prevalent in most of Florida's small businesses because of both the ups and downs of the tourism cycle and because of weather-related disruptions. Therefore, these types of commercial loans typically have more flexible structures, terms for repayment, and amounts of working capital than commercial loan types seen throughout other regions of the United States.

Loans for Small Businesses in Florida

Loans for Small Businesses in Florida typically fall into one of these three categories:

1. Local banks and credit unions.

2. SBA-backed loans.

3. Online and digital lenders.

Each option has different borrower profiles, loan amounts available, and timelines for repayment. By understanding these differences, small business owners can avoid being matched with a loan type that could cause cash flow issues or limit growth opportunities.

Loans for small businesses in Florida can be used for many purposes. Examples include the following:

• Providing working capital.

• Purchase of equipment.

• Purchase of commercial real estate.

• Refinancing current debts.

• Funding a startup or developing a new enterprise.

Eligibility for loans is widely different among lenders and loan programs. Most lenders will look at credit score, length of time in business, revenue history, and a business plan before deciding whether to approve a loan application.

Local Banks and Credit Unions Offering Loans for Small Businesses in Florida

For many decades banks and credit unions are the traditional lenders for loans for small businesses in Florida. Local banks and credit unions have generally provided credit underwriting through relationship based underwriting (assessing risk through relationship with the business rather than just through credit analysis using an automated scoring system).

Community Banks and Credit Unions may assess their Borrower using the following criteria:

• Knowledge of the local market where the business operates

• Reputation of the Borrower (reputation of the business in the local community)

• Industry Knowledge and Experience of the Borrower

This type of lending is extremely beneficial to established Florida Small Businesses who have predictable cash flows and stable operations.

Types of Loans Offered

Local Lenders typically offer the Following Loan Products:

• Term Loans

• Business Lines of Credit

• Equipment Financing

• Commercial Real Estate Loans

Loan amounts and Interest Rates are determined based on the collaborating factors of the Borrower (e.g., credit profile, collateral, etc.).

Advantages:

• Personalized Service (Individualized Approach to Borrowing)

• Possibility of Lower Interest Rates than National Lenders

• More Flexible Discussions Regarding Repayment Terms

Disadvantages:

• Stricter Requirements for Eligibility to obtain a loan.

• Longer Wait Times for Approval of Loan Application

• Limited Loan Availability for New Businesses (Start-ups)

Local lenders generally prefer to work with borrowers that have a good credit rating and have been in business for at least several years.

SBA Loans in Florida: How Do They Work?

SBA loans for small businesses in Florida are not provided directly by the United States government. Rather, the United States Small Business Administration (SBA) guarantees a part of the loan reducing risk to the lender. Therefore, SBA loans are attractive to lenders to assist small business owners who may not meet the lending requirements of commercial lenders.

SBA 7(a) Loan

The SBA 7(a) loan program is one of the most popular SBA loan programs. This program supports a wide variety of types of loans. Some of the prominent ones are:

• Working Capital

• Business Acquisition

• Equipment purchases

• Refinancing of Eligible Business

• Debt

SBA 504 Loan

The SBA 504 Loan program is generally focused on providing financing with a long-term fixed rate for large assets. This program is typically used by small business owners to finance the following types of assets:

• Commercial Real Estate

• Heavy Equipment

• Facilities Occupied by the Business Owner

Benefits of SBA Loans for Small Businesses in Florida

SBA loans are government-backed loans, therefore, they offer many advantages. Some of the major benefits for qualified applicants are:

• Extended repayment terms

• Competitive interest rates

• Low down payment requirements

• Larger loan limits

Challenges of SBA Loans for Small Businesses in Florida

Though SBA loans are federal programs, they may not be ideal for every situation. Following are some challenges that businesses usually face with SBA programs:

• Extensive application process

• Personal guarantee requirements

• Longer approval times

Small business owners in Florida can take advantage of SBA loans for future growth rather than short-term liquidity needs.

Microlenders in Florida and Non-Profit Lending

In Florida, there are many microlenders that operate as non-profit entities, providing smaller amounts of money for loans, generally below $50,000. The Small Business Administration (SBA) Microloan Program provides support for many of these non-profit microlenders.

Some examples of microlender loans include:

• Loans for start-up businesses

• Loans available to first-time applicants for business loans in the state of Florida

• Loans available for underserved entrepreneurs.

Benefits of Microloans for Small Businesses in Florida

• Flexibility in Eligibility Requirements

• Build Credit, if the lender reports to credit bureaus.

• Receive Technical Assistance and Mentoring

Limitations of Microloans for Small Businesses in Florida

• Only offer Smaller Loans

• Limitations in Geographic Area that Microlenders Serve.

Microlenders offering loans for small businesses in Florida usually make an effort to develop economic opportunities and support development of local businesses.

Online and Digital Lenders Offering Loans for Small Businesses in Florida

Digital and online lenders have significantly expanded access to business financing for entrepreneurs and small business owners by utilizing technology-based underwriting methods. The types of loan products that most of these new lenders provide include:

• Short-term business loans

• Business credit lines

• Commercial real estate Loans

Although most online lending institutions will allow you to get your application processed faster, they may charge higher interest rates as compared to conventional bank loans. If you're looking for working capital, online loans may be a good option. If you're planning to invest for the long haul, you should consider a different option.

Choosing the Right Loans for Small Businesses in Florida

Finding the correct small business loan can be a challenge. You need to find the loan that best fits your business use case and growth stage.

• Growing Business: SBA 7(a) loans or Business Lines of Credit

You should also align your loan repayments with your business income. This is because many seasonal Florida small businesses can benefit significantly from flexible repayment options.

First Time Business Loan Florida: Key Considerations

First-time borrowers may be subject to additional scrutiny than established businesses. To prepare for a first-time business loan In Florida:

• Write a business plan

• Provide all documentation for business loan consideration.

• Know your loan options

• Know your eligibility requirements

• Be sure to provide all required documentation.

The SBA offers guidance for first-time borrowers to help them plan their business, launch their business, manage their business, and grow their business.

Common Mistakes to Avoid

Even established businesses can sometimes make small mistakes during their loan journey. Therefore, entrepreneurs must be careful when applying for loans for small businesses in Florida. Avoid these common errors when applying for a first-time business loan:

• Borrow too much money than is needed for business

• Do not account for the total cost of assuaging and/or repaying a business loan

• Failing to consider refinance opportunities

• Applying for a loan without understanding the requirements

Planning carefully prepares your business for better financing options over a longer timeframe.

Conclusion

When it comes to financing small businesses, there is no best small business loan. The option that suits your business needs is the one that is best for you. Therefore, different businesses may have different best loan option. To determine, which option suits the best, you must take into account your credit history, business stage, ability to generate recurring and/or increasing cash flows until you reach your goals.

The best way to find out which forms of financing will be best suited for your small business is to evaluate each lender individually, compare them, become familiar with how each product works, and choose the form(s) of financing that will help sustain your business growth rather than provide a short lived solution.