Where to Turn When Your Bank Doesn't Love You Anymore

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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It’s the ultimate kick-in-gut as an entrepreneur: Your bank says your loan doesn’t fit its lending criteria anymore and won’t renew your line of credit. Or it changes its services or lending terms in a way that makes it unattractive for you to continue doing business there.

In these days of financial industry turmoil, getting the brush-off from a bank can happen even if you run a multimillion dollar business that has been loyal to one institution for years. If your loan isn’t profitable, even a longstanding relationship may not be enough for the institution to want to hold onto your business.

“This is not a time when many small businesses and entrepreneurs are feeling the love from their banks,” says attorney Andrew Sherman, a partner in the Washington, D.C. office of Jones Day and author of books such as Raising Capital and the new release Harvesting Intangible Assets.

Big banks aren’t, of course the only place to turn for financing. If you’re willing to think creatively, there are plenty of other sources. (To comparethe costs of various deals, use Yahoo’s calculator.)

Your Credit Union

Credit unions have come a long way since the days when they mainly focused on serving employees of a single company or industry, notes Sherman. “Just because it has a name like the Farmer’s Credit Union, you don’t have to be a farmer to join,” he says.

Some credit unions are branching out into small business lending or stepping up their lending in this area. And they may view your loan application with a friendlier eye than a megabank would. In Biz2Credit’s November index, the rate of loan approvals by credit unions in the company’s network was 57 percent, compared to 10 percent by big banks.

A Community Bank

Small community banks may not have the brand-name draw of the banking giants, but many will be more eager for your business. In the Biz2Credit Small Business Lending Index, issued by online loan brokerage Biz2Credit, for November 2011, community banks approved 47 percent of loan applications. That’s a lot better than the one in ten loans that their big bank counterparts did.

Peer to Peer Lending Sites

For small loans, check out sites such as Prosper and Lending Club, the two largest players in this field in the U.S. The two sites issued a combined $37.4 million in loans in November, according to the industry publication P2P Lending News. Lending Club’s interest rates on business loans start at 6.78 percent. At Prosper, they start at 6.59 percent. Interest rates depend on your credit history.

Vendor Financing

If you’re facing cash flow challenges, but need to make an urgent purchase, such as a computer, look into the financing options your vendor provides. “Many companies in recessionary times are more aggressive in wanting to sell products and services and are willing to provide vendor financing,” says Sherman.

Equipment Leasing

You may be able to lease equipment and machinery at far more favorable rates than a bank offers.

Crowdsourced Funding Sites

These can be an ideal source of small amounts of financing for businesses, such as popular restaurants, that have an avid fan-base or for those, like artists and musicians, who are working on creative projects, says Sherman. Kickstarter and other such sites enable fans to make small donations which, collectively, can add up.

And now for some good news.

The bank lending picture seems to be improving since the darkest days of the credit crisis. The Biz2Credit Small Business Lending Index found that loan approval rates by both big banks and smaller lenders are continuing to rise.