By Poonkulali Thangavelu
As a result of the Great Recession, a number of people have seen their credit scores slide. There are those who have also run into difficulties with their businesses and find it difficult to get a business loan as a result. This makes their lives more difficult, particularly entrepreneurs for whom credit is the lifeblood of their business.
As the economy continues to recover and grow, many entrepreneurs are looking to expand their businesses, invest in capital equipment, hire new workers and open new locations. And with interest rates so low, it makes sense to take on debt. While some lenders, particularly banks, are less likely to lend to a business that doesn’t have good credit, there are some other avenues.
A microloan is a small loan that is usually less than $50,000. It could be extended to a business by an agency such as the Small Business Administration or a nonprofit organization. These loans typically have a social motivation and are aimed at giving smaller entrepreneurs a hand. These lenders are more lenient about a borrower’s less-than-stellar credit.
Cash in on Your Revenues
If your business is generating revenues and you are making bank deposits, you could make use of this cash flow to get a loan. The lender will look at your deposits to decide how much to lend you. Usually, this is about 10 percent of the amount that is deposited annually to your business’ account. This sort of loan could be available in a week’s time, making it relatively fast to access. However, interest rates on these types of loans tend to be higher than for a bank loan. Also, the term of this sort of loan doesn’t run very long. You would typically pay back the loan through withdrawals from your bank deposits over a period of time.
Tap Into Your Credit Card Sales
If you have regular credit card sales, you could also tap into them to raise cash. How this works is that the lender will advance cash in exchange for a portion of your future credit card sales. This is known as a “merchant cash advance.” Be careful about the interest rate your lender offers if you go with this approach, since there is a wide range of rates that each lender charges. The typical way of repaying this loan is to pay a portion of your everyday credit card sales to the lender until you pay off the cash advance. Some lenders may also be open to a monthly installment payment.
Find a Cosigner
You could also look for a business partner who is willing to cosign a business loan for you. Of course, this business partner should be somebody with a good credit standing. This will make a lender more confident about getting its loan repaid and you are also likely to get a loan on more favorable terms than you would get with your bad credit standing. You will likely have to offer this cosigner a stake in your business.
The Bottom Line
Since the Great Recession negatively impacted the credit standings of many individuals and businesses, there are those that still have problems accessing credit. And with many entrepreneurs looking to grow their businesses as the economy continues to recover, they may be looking for options beyond the traditional bank loan to tap.