Since the Great Recession, traditional banks and credit unions changed their lending requirements. They made it very hard for businesses to get small business loans. Here come the alternative lenders to fill the gap. They helped small business owners when the banks would not. We took a look at the five of the major factors that alternative lenders use to offer the small businesses with the small business loan.
Your Credit Score
As a small business owner, it is essential to keep your personal credit score as high and good as possible. Small business loans take into account the personal credit score of a business owner with 20% or more interest in the company. With alternative lenders, a small business borrower can acquire a loan with a credit score as little as 500. The best and affordable rates can be given to small business borrowers who’ve a credit score of 720 or more.
Borrowers with high credit score can generally go to their local banks and make the grade for a small business loan. Many business owners still choose to apply for funding at alternative lender. That is due to funding speed.
Before alternative lenders became customary in the market, small businesses without high credit were unable to get funding for their business.
At present, the same small business owners can get funding. Loans for low credit borrowers are commonly within the type of Automated Clearing House (ACH) or Merchant Cash Advance. The funding is primarily based on the monthly revenue of the merchant processing account or business bank account. Normally, this type of funding tends to come at somewhat high rate.
No matter how good your credit score is, when it comes to taking merchant cash advance or ACH funding, you will have to pay high rates. Normally, this type of business funding can only be used when you need quick cash.
For How Long You Are In Business
A business that has been running for at least two years is considered as a start-up business. Start-up businesses aren’t eligible for a traditional funding. Traditional lenders normally ask businesses to be operational at least two years before they’ll lend to them.
The alternative lending market has changed the standard. Small businesses that have been working for at least 3-4 months can now get small business loans fast. The cash provided to you is only based on business’ monthly revenue.
The more time you are running your business, the more funding alternatives available to you. A business that has been running for more than two years will have the best chance at getting business loan. These loans can be at a lower cost.
Your Monthly Revenue
Small businesses that have been running for more than two years need to be generating monthly sales of $5,000 to make the grade for funding. The funds that are available to them all through this point in their business will be primarily based off their monthly revenue. Generating that amount of sales does not imply that you will get the cash. The common daily balance of your business bank account will settle on how much amount of cash can really be offered to you and paid over a period of time.
Your business resources can serve as collateral when getting small business loan. There are several types of collateral that can be used to help you get a loan. The type of collateral will highly depend on the type of funding program that you make the grade for.
Deposits based totally on your business bank account or merchant processing account. This is one of the few options that new businesses have. This attribute can be used for any business whether it is a start-up or seasoned business.