Small Business Loans With Bad Credit Score : Many small business owners struggle to get their hands on business finances, and there is absolutely nothing outlandish about this. Getting business loans for small businesses, such as retailers, restaurants, repair shops and so on, is not as simple as banks think.
However, this does not mean that getting a business loan is impossible. It all depends on where one goes looking for a loan. Usually, there are two main options that business owners have, approach their local bank and go to a lender or private lender.
Banks and small business loans
Banks look at applications for small business loans from their perspective and their perspective is determined by their criteria. When we talk about criteria, there are many criteria and these are all inflexible as well as strict.
Usually, banks require a high credit score, which is around 700 or more. If a business applying for a bank loan does not have good credit, their application will be rejected based on only one of these criteria. In conclusion for banks and credit scores, funding a business with bad credit with a bank is impossible.
This is not to say that there aren’t a number of other criteria, which banks follow with great care and are taken equally seriously. The bank’s criteria have been established for decades based on shared experience, and these criteria apply across the board.
As is known, banks are less interested in financing small business loans. The reasons for this are many and one of the main reasons is that, small business is considered a high risk investment from the bank’s perspective and experience.
Private lenders and small business loans
With a private lender, the situation is completely different from what a business owner would experience with a bank. Private lenders have a completely different list of criteria for providing cash advances to business owners.
Since private lenders mainly offer MCA (Merchant Cash Advances), the criteria for this are simple. MCA loans are unsecured loans, and also do not require a high credit score. As a result, it is easy to qualify for this type of funding.
However, many small business owners don’t view MCAs from a friendly perspective, and they have their reasons. Interest rates are higher than traditional bank loans, and most business owners want low interest rates.
However, the point of MCA is not to compete with bank financing, as the two are in very different arenas. Despite the fact that both are financing for business, the whole process, terms, features and all other details related to funding are very different.
With MCA loans, the question of how to qualify for a small business loan doesn’t really apply. Only in some cases are small businesses turned down by private lenders. Generally, most businesses receive the funds they need for their business.
MCA loan V/S bank loan
Merchant advances or MCAs for short are generally accompanied by high interest rates. This is much higher than what the bank provides, and the reason is because it is a short-term unsecured loan.
There are many businesses that will never qualify for a traditional bank loan, regardless of how much they need or want it. If their credit score is low, or if they are unable to provide the collateral requested by the bank, their application will be rejected.
That doesn’t mean there aren’t many other reasons why small business loan applications are not rejected by banks. Also, banks are under no obligation to provide funds to those they choose not to do so. This leaves many small businesses with no other choice.
For MCA loans, businesses don’t need much in terms of credit scores and collateral. The basic criteria for an MCA loan are stated here, as follows. Business must be at least 12 months old and business running. Business owners may not be in active bankruptcy at the time of loan application. Finally, the gross income of the business must be at least $10 thousand a month.
The easy criteria make it easy to get an MCA, and the downside is definitely the interest rate and duration for some business owners. However, those who take advantage of such business funding are businesses that have no choice, or those who need a quick business loan. Some of the advantages are the processing time frame, which can be as little as a few days.