Many small business owners struggle to obtain business financing, and there is absolutely nothing unusual about this. Obtaining a business loan for small businesses, such as retailers, restaurants, garages, etc., is not as simple as one would think at the bank.
However, this does not mean that it is not possible to obtain a business loan. It all depends on where the loan is to be found. There are generally two main options that business owners have: go to their local banks and go to a private financier or lender.
Bank and Small Business Loans
Banks view small business loan applications from your perspective, and your perspective is determined by their criteria. When we talk about criteria, there are numerous criteria and all of them are not flexible but also strict.
Banks generally require high credit scores, which should be around 700 or higher. If a company applying for a loan with the bank lacks excellent credit, its application will be rejected simply based on that criteria. In conclusion, for banks and credit scores, bad credit business financing with a bank is not a possibility.
This is not to say that there are no other criteria, that banks follow carefully and are also taken just as seriously. Bank criteria have been established over the decades based on shared experience, and these criteria are general.
As is generally recognized, banks are not very interested in financing small business loans. The reasons for this are many and one of the main ones is that small businesses are considered high risk investments from the perspective and experience of banks.
Private funders and small business loans
With a private lender, the situation is completely different from what a business owner will experience with a bank. Private lenders have a completely different list of criteria for providing cash advances to business owners.
As private lenders primarily offer MCAs (Merchant Cash Advances), the criteria for these are simple. An MCA loan is an unsecured loan and does not require high credit scores, either. As a result, it is easy to qualify for this type of financing.
However, many small business owners do not 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 with MCAs is not to compete with bank financing, as both are in quite different scenarios. Aside from the fact that they are both business financing, the entire process, requirements, features, and all other details related to financing are completely different.
With an MCA loan, the question of how to qualify for small business loans doesn’t really apply. Only in very few cases do private lenders turn away small businesses. Generally, most companies receive the financing they need for their business.
MCA loans V / S bank loans
Merchant Cash Advances or MCAs, in short, are generally accompanied by high interest rates. Much higher than what the bank offers, and the reason for this is that they are short-term unsecured loans.
There are many companies that would never qualify for a traditional bank loan, because of how much they need or want it. If your credit scores are low, or if you cannot provide the collateral that banks require, your applications will be rejected. This is not to say that there aren’t many other reasons why banks don’t turn down small business loan applications. Furthermore, banks are under no obligation to provide financing to those who choose not to. This leaves many small businesses with no other option.
For an MCA loan, a business doesn’t require much in terms of credit ratings and collateral. The basic criteria for an MCA loan are mentioned below. The business must be at least 12 months old and in operation. The business owner must not be in active bankruptcy at the time of loan application. Finally, the gross income of the business must be at least $ 10,000 per month.
The easy criteria make obtaining an MCA easy, and the drawbacks are definitely interest rates and duration for some business owners. However, those who capitalize on this type of business financing are those who have no other option or those who require quick business loans. Some of the benefits are processing times, which can be as little as a couple of days.