How to improve your access to alternative loan programs
In a recent report, over 63 percent of business owners attempting to find funding say they most often targeted banks. Unfortunately, the success among these respondents of actually getting a business loan was a low 27 percent.
However, recent news suggest small business owners considered creditworthy are discovering it to be easier to get business loans from traditional banks. This is good news for the economy since access to funding for small businesses is a part of job and economic growth.
Unfortunately, bad credit plagues a large percentage of small business owners as a result of the financial crisis several years back. The fact remains that it’s harder for smaller businesses—even with stellar credit ratings—to get traditional bank loans than it is for larger businesses.
Access to capital is the single largest roadblock most business owners face when growing their business. With a business loan, these businesses can hire new employees, purchase additional inventory, buy or upgrade equipment and increase their marketing efforts.
So what can a business owner do if bad credit is preventing them from getting a business loan?
The good news is there are alternative funding programs and solutions providing business owners the opportunity to obtain a business loan or line of credit regardless of having bad personal credit. Instead, other factors are taken into consideration such as bank deposit history, credit card sales, credit partners and other data sources.
Here are some suggestions that can help get you a business loan regardless of having bad credit:
1) Bank deposits: A business with regular bank deposits can put its cash flow to work with revenue-based loans. This program is based on the deposits going into the business bank account on a monthly basis. Typically, a business can obtain a business loan equal to 10 percent of its annual gross deposits regardless of having bad credit. Another benefit of this program is the time it takes to get funded, which is approximately seven business days.
Keep in mind the loan term can be as long as 18 months with this program, with rates slightly higher than a traditional bank rate. It requires no collateral, financials or tax returns. Repayments are made in small increments every day via ACH from the business bank account.
2) Credit card sales: This type of funding program, known as a merchant cash advance, provides businesses with upfront cash in exchange for a portion of future credit card sales. For businesses that have regular monthly credit card sales but struggle with bad personal credit, a merchant cash advance may be a viable option.
However, be very selective on what merchant cash advance provider you select. Some providers can cost as high as 38 percent while others can be as low as 12 percent. In addition, when it comes to repayment, the majority of merchant cash providers take a fixed percentage of your daily credit card receipt volume until the advance you took is paid back. Other business cash advance providers may offer a fixed monthly installment payment for its repayment method.
3) Credit Partner: Using a business partner as a credit partner for obtaining lines of credit in the form of business credit cardscan be a viable solution to overcome a personal credit challenge. A business partner who has strong credit scores is the best place to look. You may also want to consider someone who is interested in participating in your business as a potential credit partner.
This method does bring risk to the credit partner because they are cosigning with the business to obtain funding. However, it is important to note the type of unsecured business credit cards I am referring to will not appear on the personal credit reports of the cosigner unless they go into default.
There are many other types of funding programs that offer small business owners the opportunity to get business loans or access to cash without having perfect credit or subjecting themselves to all the rigorous analysis, cumbersome paperwork, lengthy process and aggravating timelines that comes with a traditional business loan.
Marco Carbajo is a business credit expert, author, speaker and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and AllBusiness.com. His articles and blog, BusinessCreditBlogger.com, have been featured in Fox Small Business, American Express Small Business, Business Week, The Washington Post, The New York Times, The San Francisco Tribune, Alltop, and Entrepreneur Connect.