Small Business Loans With A Poor Credit Score
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Small Business Loans With A Poor Credit Score |
Getting a business loan from a bank for small businesses like retailers, restaurants, garages, etc.
Banks and Credit Scores Finally, business funding is unlikely with a bank with bad credit.
Many small business owners struggle with obtaining business financing, and there is nothing unusual in that. Getting a business loan from a bank for small businesses like retailers, restaurants, garages, etc. is not as easy as it sounds.
But this does not mean that getting a business loan is not possible. It all depends on where one goes to take the loan. Generally, business owners have two primary options, approaching their local bank and approaching a private fund or lender.
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Bank and Small Business Loans
Banks look at small business loan applications from their perspective and their perspective is determined by their criteria. When we talk about norms, there are many norms and all of them are flexible and strict.
Generally, banks require a high credit score, which should be around 700 or above. If the business applying for the loan in the bank does not have excellent credit, their application will be rejected based on that one criteria. Banks and Credit Scores Finally, business funding is unlikely with a bank with bad credit.
This is not to say that there are not other norms which banks follow scrupulously and take equally seriously. Bank standards have been established over decades based on shared experience, and these standards are across the board.
As is commonly believed, banks are not very interested in funding small business loans. There are many reasons for this, and one of the primary reasons is that small businesses are considered high-risk investments from a bank's perspective and experience.
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Personal Finance and Small Business Loans
The situation with a personal lender is completely different from what a business owner experiences with a bank. Personal lenders have a completely different list of criteria for providing cash advances to business owners.
Since private lenders mainly offer MCA (Merchant Cash Advance), the criteria are simple. An MCA loan is an unsecured loan, and does not require a high credit score. As a result, it is easier to qualify for such funds.
However, many small business owners do not view the MCA in a favorable light, and with good reason. Interest rates are higher than traditional bank loans and most business owners want lower interest rates.
But the point of MCA is not to compete with bank financing, as they both are in quite different areas. Apart from the fact that they are both funding businesses, the entire process, requirements, features and all other details related to funding are completely different.
The question of qualifying for a small business loan doesn't really apply with MCA loans. Small businesses are rarely taken away by private lenders. Generally, most businesses obtain the necessary funding for their business.
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MCA Loan V/S Bank Loan
Merchant Cash Advance or MCA in short usually comes with higher interest rates. Much more than what the bank pays and the reason for this is that these are unsecured short term loans.
There are many businesses that will never qualify for a traditional bank loan, no matter how much they need or want it. Banks will reject their applications if they have a low credit score, or if they are unable to provide collateral. That's not to say that there aren't many other reasons why banks don't decline small business loan applications. Also, banks are under no obligation to fund people they don't like. This leaves many small businesses with no other option.
MCA loans do not require much in the way of business credit score and collateral. Here are the basic criteria for MCA loan, which are as follows. The business must be at least 12 months old and must be an ongoing business. The business owner must not be in active bankruptcy at the time of the loan application. Lastly, the business must have a gross income of at least $10,000 per month.
The simple criteria make it easy to obtain an MCA, and the drawbacks are the interest rate and fixed term for some business owners. However, the people who capitalize on this type of business financing are businesses that either have no other options, or are in need of a quick business loan. Some advantages are the processing time frame, which can be as short as a few days.
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That's not to say that there aren't many other reasons why banks don't decline small business loan applications. MCA loans do not require much in the way of business credit score and collateral. However, the people who capitalize on this type of business financing are businesses that either have no other options, or are in need of a quick business loan.
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