If your small business has been turned down for a bank loan — or based on your research and inquiries, you are certain that your application has “less than zero” chance of making it to the finish line because your credit score is too low, you haven’t been in business long enough, you’re in what banks consider to be a “risky industry” (e.g. restaurant, warehousing), or any other factor — then rest assured, you aren’t alone.
Even before the Great Recession of 2007/2008 — but especially after — banks have dramatically scaled back their small business lending, and are focusing upstream on larger enterprises. Unfortunately, that leaves millions of small business owners like you on the outside looking.
The good news is that there are several alternative small business loans that could be the funding solution you need to keep your business strong; or perhaps, to ensure that it survives. Here are some possibilities that could be viable for your needs and beneficial for your bottom line:
Working Capital Loans
The most popular alternative small business loans are working capital loans. These are lump-sum loans that can vary in duration, from as short as a few months, to as long as several years. Like a conventional bank loan, borrowers pay back a fixed amount (usually monthly). However, unlike a conventional bank loan, impaired/bad credit is not a deal-breaker, and no collateral is required.
Merchant Cash Advances
Sometimes called business cash advances, merchant cash advances are designed for businesses that conduct most of their transactions via payment card (credit and/or debit). Technically, merchant cash advances aren’t loans — which is why they are not associated with an APR. Rather, they are (as the term suggests) advances against future payment card sales.
Here’s how they work: at the end of each business day, an agreed upon percentage of payment card sales is remitted to the lender. This happens automatically, and the percentage is relatively small (e.g. 3%). This process continues until the loan is fully repaid. Similar to working capital loans, merchant cash advances aren’t secured with collateral, and they’re especially beneficial for business owners that have bad or impaired credit, because they do not involve and are not reported to credit bureaus (since as noted above, they are not loans — they are advances).
Business Lines of Credit
A business line of credit is best described as a “loan in waiting.” When borrowers need a cash flow infusion, they simply draw down the line of credit (this can be done online in a matter of seconds). Since interest is only paid on the amount borrowed, many borrowers wisely establish a business line of credit before they have a specific spending requirement or opportunity.
Equipment financing enables business owners to purchase equipment instead of leasing it, which can be much more cost-effective in the long-term (leasing may seem cheaper on a month-to-month basis, but remember: the leasing company owns the asset — not the borrower). Although equipment financing is secured with collateral, in most cases the equipment itself is used for this purpose, which means borrowers do not have to pledge additional business and/or personal assets.
To learn more about any or all of the above alternative small business loans, contact the National Business Capital team today. Or if you are ready to apply right now, please complete our fast, secure online application form. We will be in touch within 24 hours, and upon approval we will have the funds in your account within a matter of days. We approve approximately 90% of all small business loan applications.