Looking for loans in new places

Plans were drawn up for the third of their Golden Star Family Restaurants on land the family had owned for years. Then their longtime bankers turned down the Contoses' request for a $1.5-million loan, offering much less than they needed despite their good credit record.

"We thought it was a sure thing," said Aristi Contos, whose father, Dimitrios "Jimmy" Contos, opened the family's first Long Beach eatery in 1963 after immigrating to Southern California from Greece.

Like many small-business owners, the Contos family has learned a tough lesson: In today's credit markets, there are no sure things.

Some 72% of small-business owners seeking loans say it is harder to borrow money now, according to a September survey released by Discover Financial Services.

As banks struggle with their own credit problems, even business borrowers with good credit are finding that they may have to pay more for a commercial bank loan, that they are offered less money than they need or that they are shut out all together. Two popular sources of credit -- home equity loans and credit cards -- have been drying up for months.

"This is totally unprecedented, and no one knows where this will end," said Chris Larsen, chief executive of Prosper Marketplace Inc., which runs the online lending site Prosper.com.

Cash almost always will be available from one source or another, but the cost to rent it may be too high to make sense. Increasingly, small-business owners who can't wait out the credit squeeze are turning to alternative sources for the money they need

In August, the Contos family got $1.7 million from a federally guaranteed Small Business Administration loan. Here is a look at the SBA program and a handful of other options to consider.

* SBA loans. This kind of loan is made by a bank, which receives a guarantee from the SBA that some of the money would be paid back by the U.S. government if the borrower were to default. The goal is to encourage banks to provide loans for small businesses that might not qualify for a standard commercial bank loan, which can be less expensive than SBA-backed loans.

The maximum amount is $4 million for the SBA's fixed-asset loan, the so-called 504 program; and $2 million for the other main loan, the 7(a).

The Contos family went to Excel National Bank of Beverly Hills, which is bucking the trend for the time being by aggressively soliciting borrowers for its SBA loans.