The harsh reality is that many small business owners now struggle with business finance. This is not unusual. If you run a small business and you want a business loan, the process is not as simple as some might think. However, this does not mean that it is impossible to get the loan, even if credit score is poor. While many small business owners believe loans are not available because of credit score, Investar USA highlights that options are always present. You just need to know where to look.
Small Business Loans From Banks
There are always specific criteria that apply when banks analyze small business loan applications. Criteria vary from one bank to the next. However, all of them are non-flexible and pretty stringent.
Usually, the bank looks at the credit score. They want to work with those businesses with a credit score of around 700. If excellent credit is lacking, the application tends to be instantly refused. For the bank, credit score is something that cannot be negotiated.
While credit score counts, other criteria can be taken into account and in rare situations will have a large impact on the decision to approve the loan or not. The best option available when looking at banks for funding is to find those that are specialized in working with small businesses. Such banks understand credit in a different way and might approve a small business even if credit score is not stellar.
Small Business Loans From Private Funders
For most small businesses, when the bank is not an option, the next thing to consider is getting help from the private lenders. This is because different criteria are considered when deciding if the loan is approved.
Most private lenders now offer MCAs (merchant cash advances). These are different as they are unsecured loans that do not take credit scores into account, or at least they do not need really high scores. It is practically a lot easier to get funding from the private funders.
The big problem is that most small business owners do not even consider the MCA option. It is easy to understand why since interest rates tend to be much higher than the regular bank loans. It is normal as a business owner to look for the lowest interest rates.
What has to be understood is that the MCA should not compete with financing offered by the banks. They are quite different. You can use the MCA in order to increase your credit score. This might allow you to get a bank loan in the future. At the same time, the MCA can give you access to funds when you desperately need them. Just make sure you can repay them so that your credit score does not become even lower.
Small businesses might have problems getting commercial loans from banks, but, as it was presented above, options are available. If expansion makes sense, it should not be stopped by a credit score that is not stellar. However, strict calculations are always necessary.