Small business financing in 2012

Experts expect small business financing will be easier to come by this year, but entrepreneurs may still need to be resourceful and think out of the box in order to secure loans with a good rate, according to Fox Business.

"It is going to continue to be a fight and a struggle to get small-business owners capital at fair prices," said Ami Kassar, CEO of Broad Axe, Pennsylvania-based small business lending consulting firm MultiFunding, as quoted by the news source.

It's predicted that 2012 will see the continued rise of alternative sources of funding, including companies that help entrepreneurs roll over their retirement savings to invest into new businesses or franchises, and crowdfunding sites that encourage large pools of investors to contribute small amounts of money.

Arguably the most well-known crowdfunding site is New York-based Kickstarter, which describes itself as "the world's largest funding platform for creative projects … from the worlds of music, film, art, technology, design, food, publishing and other creative fields." The site operates on an "all or nothing" principle, meaning that if a project doesn't meet its financial goals, the money contributed by investors is never taken out of their accounts.

According to Kickstarter spokesman Justin Kazmark, the site has seen more than $125 million worth of pledges since it was founded less than three years ago. Its competitors - most notably IndieGoGo and RocketHub - have also seen success.

If alternative financing approaches don't sound like the right fit for your business, there are a number of more traditional capital sources you can turn to, including bank loans, venture capital, angel investing, asset-backed lending and Small Business Administration (SBA) loans.

Since the recession, large banks have dramatically cut their small business funding, although the same can't be said of community banks, which have in fact increased their loan volumes. According to the news source, small business loan volume at small banks rose by $17 billion between 2007 and June of last year, hitting a total of $302 billion.

Kassar predicts an ongoing disparity between the financing offerings of small and large banks, noting that community banks are actually better equipped to handle small business funding due to the fact that they have less rigid processes. What's more, their loan officers work on site, making themselves available to assist with applications and answer entrepreneurs' questions.

Loans disbursed by the SBA broke records in fiscal year 2011, which ended on September 30. A total of $30 billion was given to small companies from across the nation that needed capital to grow and expand.

Also, more small enterprises took advantage of financial help from the government than ever before, and in November of last year, the SBA published a proposal that would allow nearly 15,000 more companies to qualify for financial assistance. The proposed rules, which were published for comment in The Federal Register, would increase size standards for small businesses across 29 industries including real estate and educational services. 

Entrepreneurs can also turn to venture capital firms, which, according to Fox, have been investing in more early-stage, high-growth businesses of late. In the first three quarters of 2011 alone, the industry made a total of 2,725 investments worth $21.2 billion.

Angel investors - defined by the news source as "high net-worth individuals who help fund startups in exchange for a percentage of the company down the road" - have also begun to loosen their purse strings. In the first six months of last year, they provided $8.9 billion in funding - a 5 percent increase from the same period in 2010, according to figures from the University of New Hampshire Center for Venture Research.