Business owners who are looking for business capital may have to contend with the fact that they don’t have great credit. While this could make it harder to get a loan, it doesn’t make it impossible. However, it will be necessary to do some due diligence prior to asking a bank or other financial institution to provide funding.
Is a Loan Right for Your Company?
The first question to ask is whether a loan is right for your company. In some cases, you can get the funding that you need from other sources at a better price or with other favorable terms. In determining the answer to this question, decide what the money will be used for and how it will meet the short and long-term needs of the organization. If you still decide that a loan is worth pursuing, you can then look into the specific product that works best for your business.
Review Your Credit Situation
It is a good idea to review both your personal and corporate credit scores. Doing so can help you spot any errors that may be bringing it down. It can also provide some insight into why your score is lower than you want it to be. If there isn’t enough time to bring it up before requesting a loan, you can put your score into context for the lender. This may be enough to have your application approved despite your shortcomings.
Create a Tailored Pitch
A lender is going to want to know exactly what the money is going to be used for. For instance, you may choose to ask for cash to pay employees or to buy a new piece of equipment. During your pitch, you should demonstrate why the new employees or equipment will help the company make more money. By showing how the loan helps the company, the lender may feel better about its chances of getting paid back in a timely manner.
Get Documentation Together
The bank or other lending institution is going to want to see specific information about both yourself and the company. It will want to see a financial statement detailing your profit or loss over the prior year. This statement should also list your company’s current liabilities, assets and revenue. Ideally, this information will be reviewed and compiled by a professional accountant or accounting firm. By creating a professional look to your application, a lender will take your request more seriously.
Take Time to Consider the Loan Terms
Typically, lenders will give you several days or weeks to mull their loan offer. It is imperative that you take as much time as necessary to make sure that it meets your needs and the needs of the company. In some cases, you may want to have your legal and financial team look it over before agreeing to take the money.
If you do decide to borrow the money, you are obligated to abide by the lender’s terms until the proceeds have been repaid. However, if your company is struggling to repay it as agreed, the lender may offer flexible repayment terms to help keep you current. Make sure that you know whether the loan is secured or unsecured. This is because the company could lose its collateral if the business defaults on its obligation to repay a secured loan.
Obtaining capital for your business can be a complicated endeavor even for mature companies with good credit scores. If your a small business owner with less than stellar credit, you will need to work hard to gain a lender’s trust. Therefore, it is important that you understand the process of getting a loan and how to improve your odds of having it approved.
Dallas Merchant Cash Advances
Business owners of all types know that cash is key to remaining operational. When cash flow is healthy, it’s easy to maintain and even grow a business. During slow seasons or when there’s not enough cash to take advantage of a growth opportunity, the business owner looks for additional financing. That’s where the idea of a merchant cash advance comes into the picture. Here are some things you should know about this financing option before you decide it’s the best choice for your business.
So What is a Merchant Cash Advance?
A merchant cash advance is financing obtained from your merchant service provider. Essentially, it involves extending money that you and the provider agree will eventually be generated by your sales. The provider extends the money in a lump sum. In most cases, there are no restrictions on how you can use the advance.
How Does It Work?
While providers vary somewhat in how they evaluate applications for advances, the typical approach is to look at the merchant’s monthly business volume. Specifically, that’s how much volume the merchant generates through the provider. Based on the amount and the consistency of volume from month to month, the providers agrees to advance up to a specified sum.
The repayment process involves the provider withholding a percentage of each transaction conducted until the balance is repaid in full. That includes the original advance amount plus any additional interest or fees that apply. Once the advance is repaid, the merchant is free to request another advance from the provider.
What Advantages Come With a Merchant Cash Advance?
There are several key advantages that make this type of advance attractive. One has to do with the quick application process. Compared to other financing options, the merchant provides only a minimum of information.
Another benefit is that the merchant’s credit rating is not really a factor. The primary focus is on the business volume processed through the provider. That’s because the provider will incrementally recoup the investment in the merchant by retaining a small percentage of each transaction.
There’s also no need to pledge collateral of any kind. The merchant is still free to do anything with the company assets that he or she wishes to do. Funding is also fast and easy. In many cases, the funds will be in the merchant’s operating account in no more than one or two business days.
Are There Any Drawbacks I Should Consider?
Along with possible advantages, there are a few potential pitfalls surrounding merchant cash advances. The interest rates are typically much higher than traditional bank loans or lines of credit. The merchant must also be prepared to deal with the lower amount of daily cash flow, since the provider is keeping a percentage of each processed transaction.
If you were thinking about shopping around and finding a different merchant account provider, that will have to wait until you completely repay the advance. Even if some issue arises and you really want to find another provider, you must pay off the advance in full or face the potential for some serious legal problems.
Is a Merchant Cash Advance Right for Your Business?
The way your business operates is key to whether this is the right financing option for you. Businesses like restaurants or retail stores are ideal for this approach since they generate a higher volume of credit and debit card transactions daily. By contrast, if your company sends invoices to customers weekly or monthly and only a few of them pay using credit cards, this form of financing will likely be more trouble than it’s worth.
Remember that a reputable merchant account provider will help you understand if this approach is right for you. Feel free to ask any questions that come to mind, including how the interest rate is applied, how long you have to repay the advance, and what would happen if your business volume suddenly decreased. Once you have all the answers to your questions, it will be easier to decide if an advance is a good idea, or if you should look into a business loan or a line of credit instead.