Many small business owners struggle with obtaining business finance, and this is absolutely nothing unusual. Getting a business loan for small businesses, such as retailers, restaurants, garages, and so on, is more complex than one would think from the bank.
However, getting a business loan is not possible. It all depends on where one goes looking for the loan. Typically, business owners have two primary options: approaching their local banks and going to a private funder or lender.
Banks and small business loans
Banks look at applications for small business loans from their perspective, and their criteria determine their mood. When we speak of standards, there are numerous, and all non-flexible as well as stringent.
Banks typically require high credit scores, which should be around 700 or over. If a business applying for a loan with a bank lacks excellent credit, its application will be rejected based on that criterion. In conclusion, to banks and credit scores, business funding with bad credit with a bank is impossible.
There are other criteria that banks follow carefully and take equally seriously. The standards of banks have been established over the decades based on shared experience, and these criteria are across the board.
As is generally acknowledged, banks are not very keen on funding small business loans. The reasons for this are many, and one of the primary reasons is that small business are considered high-risk investments from the bank’s perspective and experience.
Private funders and small business loans
With a private lender, the situation is entirely different from what a business owner will experience with a bank. Private lenders have a separate list of criteria to provide cash advances for business owners.
As private lenders primarily offer MCA (Merchant Cash Advances), these criteria are simple. An MCA loan is unsecured and does not require high credit scores either. As a result, it’s easy to qualify for this kind of funding.
However, many small business owners don’t look at MCAs from a social perspective and do have their reasons. The interest rates are higher than traditional bank loans, and most business owners want low-interest rates.
However, the point with MCAs is to avoid competing with bank financing, as they are in entirely different arenas. Apart from the fact that they are financing for businesses, the entire process, requirements, features, and all other details related to the funding are completely different.
With an MCA loan, the question of how to qualify for small business loans does not apply. Only in very few cases are small businesses turned away by private lenders. Generally, most companies receive the funding they require for their business click this.
MCA loans V/S bank loans
Merchant cash advances, or MCA, are generally accompanied by high-interest rates. Far higher than what the bank provides, and the reason for this is these are short-term unsecured loans.
Many businesses would never qualify for a traditional bank loan, regardless of how badly they need or want it. If their credit scores are low or they cannot provide the collateral the banks require, their applications will be rejected. There are only a few other grounds on which banks do not decline small business loan applications. Also, banks are under no obligation to provide funding to those they choose not to. This leaves many small businesses with no other option.
For an MCA loan, a business requires little in the way of credit scores and collateral. The primary criteria for an MCA loan are mentioned here as follows. The company should be at least 12 months old and a running business. The business owner should not be in active bankruptcy at the time of the loan application. Finally, the business’s gross income needs to be at least $10 thousand a month.
The easy criteria make it simple to obtain an MCA, and the drawbacks are the interest rates and the duration for some business owners. However, those who capitalize on such business funding are that business who either have no choice or those require quick business loans. Some advantages are the processing time frames, which can be as few as a couple of days.
