When you are a small or new business, you likely don’t have too much extra capital to start a new project, grow your inventory, or easily pay your monthly operational expenses. Money is tight and, sometimes, the only real option to get ahead or stay afloat is to borrow. Unfortunately, since the 2008 Great Recession, banks have had to get stricter with their lending regulations. Therefore, it’s not easy to get a loan or financing if you don’t have a good credit score and you are still strengthening your revenue streams. If you don’t have personal assets to use as collateral or you don’t want to risk what you do have, the best option may be an unsecured business loan. Unsecured business loans often charge higher interest rates and only offer smaller loans, but they don’t require collateral. Merchant cash advance financing is another option, but often this is the even more costly than an unsecured loan. Getting the capital you need is possible if you follow our tips to getting easy business loans.
Put Together a Plan: Develop a business plan with a stable foundation. The plan should include your business’ purpose, revenue sources and projections, growth strategies, and the purpose of the loan. A plan will not only prove that you have a clear picture of where you and where you are going, but it is a great document to use to find investors. Basically, the plan would outline why you would be a good risk for financing or investing.
Improve Your Credit: Credit scores are important for most types of financing. The score is less important with an unsecured loan if you have a healthy revenue potential. Nevertheless, the better your credit score, the better the interest rates you end up getting. Boost your credit score by paying bills on time and reducing the overall amount of money you owe. Get your credit card balances below 30% of their limits. Pre-pay some of the balances to get your credit utilization ratio, which accounts for about one-third of your credit score, to 10%. Making this change will have the most positive impact on your credit score. Building a history of making timely payments shows that you are a dependable borrower. Also, regularly scan your credit reports, which are used to calculate credit scores, for mistakes. Make sure the amounts you owe are correct and that no late payments are incorrectly listed. Having just one error corrected can boost your credit score.
Review Your Anticipated Cash Flow: The amount of money you expect your business to make in the future impacts how much money you can borrow. Before you begin applying for a loan and hunting down a lender, evaluate your current and future cash flow projections to determine whether you have enough to cover the repayment of a loan. This is necessary because if you default on a loan, you will not only damage your credit but it will make that much harder to borrow money in the future.
Do Your Homework to Find the Right Lender: Lower sales volumes and cash reserves, no collateral coupled with poor credit makes it tough for small businesses or startups to get approved by a bank or a micro-lender, a nonprofit that offers short-term loans. In addition to these hurdles, even if eligible, these lenders don’t get you the money you need fast. Often times, it takes two to six months to get cash in hand when you borrow from a banker or other institution.
On the other hand, many online lenders offer unsecured business loans for up to $500,000. However, unlike banks, the annual percentage rate (APR) can run anywhere from double digits to triple digits. Though you can expect to pay a higher APR and larger monthly payment because the terms also often are shorter than traditional loans.
When you are doing your research, be sure to look at the lenders qualifications. Not all online lenders work the same. One lender may require $150,000 in annual revenues for one year while another may online require half as much. The minimum credit score required also may vary.
Another thing to consider is whether the lender charges a pre-payment fee. When you take out a traditional loan, there is no penalty if you repay them early. It’s also good for the lender because they avoid paying the additional interest payments that go with each month of the loan. Some online lenders, instead, charge a pre-payment fee if you are able to pay the loan off before the term is up.
The Final Say
When you are still building a business, coming up with cash to expand your inventory, start a new project, or even pay your staff can be hard. Though difficult, it is not impossible for small businesses and startups to get easy business loans.
If you need money fast but have less-than-perfect credit scores and no collateral, consider applying for an unsecured business loan or merchant cash advance financing. Though payments and rates may be higher for both, unsecured business loans are often a little more cost-effective than merchant cash advances. Either way, both will get you the money you need to do what you want.
The bottom line is be prepared, get your credit in the best possible shape, and know where your business is and where it’s going.
When you need easy business loans, turn to First American Merchant (FAM). Its application process is quick and simple. Also, it is known for offering solutions that help merchants get them on their chosen paths.