Obtaining a Small Business Loan: Hard or Easy
Small businesses make up a vital segment of our country’s economy. But as important as they are, they can also face unique challenges.
Read on for today’s guest post on the topic of small business loans, by Vera Stoddard of VMS Capital:
According to the latest data of the White House, small businesses in the USA employ half of the nation’s workforce and create two of every three new jobs in the country. There are a total of 28 million small businesses registered in the USA.
Obviously, small businesses are quite important segment of the US economy. So, how do they grow these days?
According to latest national statistics of 2013, there is positive trend of lending to small businesses by banks observed. In April 2013 small business loan approvals improved to an all-time index high of 16.8% at big banks. Lending approvals at small banks increased for the fifth consecutive month, reaching a new all-time index high of 50.9%.
Obtaining a small business loan-hard or easy?
On the contrary, credit union approvals of small business loans continued to plummet, dropping to 45.2% in April 2013 from 45.5% in March 2013. There is no indication that this trend will reverse anytime soon.
In 2013, according to the National Survey of Small to Medium Business Executives, nearly 50 percent of small business owners believe that accessibility to loans is the largest barrier to entrepreneurs starting a new business.
Why do banks reject loan applications of small businesses?
The answer is simple: banks make their credit decision mainly based on the past performance of the business and FICO score of the owner.
What are the major criteria for their decision? It is payment history, current funds owned, length of credit history of the business and business owner. If you are a business owner who cannot demonstrate strong financial performance over the past two-three years, has little experience in business or your personal credit score is challenged, your chances to borrow from a traditional bank are unfortunately quite low.
Is there an alternative solution to be found to finance your business?
The answer is ‘Yes’! The solution is borrowing from alternative lending sources. Their ability to lend to a small business is in a different approach to approval. These lenders would rather look at your cash flow from the last three month and type of business than your credit history and FICO score. This is another underwriting model that helps them to lend to much higher number of small businesses every day.
What type of business would qualify for a loan?
If you are a business owner with one year in business, annual revenue of $100,000 and a daily average account balance of $3000 over the last 3 months, your business will qualify. And your FICO score would not really matter.
This type of financing allows you to secure working capital for your business. The loan repayment will be deducted from your bank account on a daily basis over the length of the loan (6-18 months). The lender will set your daily amount of account deduction for the loan repayment, and you do not need to worry about the rest. This type of loan would be great for a restaurant, retail shop, medical or dental practice, hair or nail salons, professional cleaners or any other business where steady revenue is in place. And the loan can be funded within a few days!
Another type of financing
But what to do if you are a consultant, business strategist, financial service professional, real estate investor, fix-and-flip person? Maybe you have not yet made your $100,000 in annual revenue? And possibly your revenue will come as a big chunk of cash, but there might be weeks or month to wait for it. You still need working capital to grow, your need to hire people, you need to cover your marketing or construction expense, right?
The way to finance your business needs is to obtain an unsecured line of credit for business. This type of financing can provide up to $75,000 of credit limit to assist a start-up business. A business that has two-years of operating history can qualify for up to $150,000. A personal credit score of 730 is required, but you can access this type of finance with a co-signer, and the loan can be funded within 15 days. And the good news is that your credit line will not be reported to the personal credit bureaus. This is important, as it will not affect your ability to borrow for your personal needs.
Sense Financial Services is proud of the many self-employed and small business owners that represent our client base. We establish self-directed retirement accounts like the Solo 401k. The IRS designed the Solo 401k for the self-employed, small business owner.
We highlight services like these that are relevant to our clients. As described in this guest post, small business loans can be obtained quickly and easily. VMS Capital is a financial advisory firm in San Diego, CA, which can help you with capital that your business deserves. Contact them at 619-795-9660 or the web www.vmscapital.com
