Beyond Credit Scores In Small Business Lending
When you have a small business, you know that a good credit score can open a lot of doors. After all, many lenders keep seeing a high credit score as the only factor that matters when your business needs a loan. However, what can you do if you don’t have a good credit score? Won’t you be able to get a loan?
Well, not necessarily. The truth is that even if your small business has a bad credit, you can still get a loan. But it will be in different circumstances and most probably, from different lenders.
So, what are your options when you need a loan for your small business and you have a bad credit?
#1: SBA Loan:
When you are in this situation, many small business owners tend to look for an SBA loan. The reality is that this kind of loan is one of the most popular among small businesses. Nevertheless, it has some cons. Besides the fact that you need to have at least two years of business history, you will need to make a substantial down payment. In addition, most lenders require that the small business owner has a credit score of at least 680.
In case you just can’t meet one of these requirements, you won’t be able to get an SBA loan.
#2: Peer-To-Peer Lending:
Many small business owners tend to look at this type of loan as a simple borrow of money from a friend. However, this couldn’t be farther from the truth.
Peer-to-peer lending involves a platform and many people, not just a friend, lending money to both small business owners and to people who need a personal loan. This platform is kept aside from banks which is great news.
While you still have requirements and the credit score is one of them, they aren’t so rigid as when you ask for an SBA loan.
One of the things that you need to keep in mind with these type of loans is that if you don’t pay on time, your fees will accumulate severely.
#3: Alternative Lenders:
One of the main benefits of owning a small business today rather than one 10 years ago is that you have a wider variety of funding options. And alternative lenders are one of them.
Alternative lenders usually only provide short-term loans. In addition, you will need to pay about a half than you would to pay for a cash advance and you don’t need to have a high credit score either.
The biggest factor that alternative lenders look at is to how much income your company is making.
One of the major cons of these alternative lenders is that they usually have high interest rates. So, even though you may get a short-term loan, you may end up paying a lot more than if you had a long-term loan.
#4: Hard Money Lenders:
Similar to peer-to-peer lending, this is the type of loan which approval doesn’t depend on your credit score. Instead, you will need to provide an asset as collateral or, on other occasions, they require a percentage of your business profits.
One of the main disadvantages of this type of loan is that the interest rates can be extremely high.