Business and personal credit both play essential roles for small business owners. Every budding entrepreneur should know how to distinguish between these two credit types, how they might influence each other, and how to cultivate business credit from scratch.
In this brief guide, we’ll cover all you need to know about these two distinct credit reporting models, including a breakdown of establishing your business credit profile for the first time, a general overview of the personal and business credit reporting process, and more.
Personal and business credit scores: how do they work?
The personal and business credit scoring models share many similarities, but they’re actually two separate rating systems. Your personal credit ties to your Social Security Number and represents a standardized evaluation of your personal financial habits.
Your personal score, also known as a Fair Isaac Corporation or FICO score, gives lenders a big-picture overview of your individual creditworthiness. To establish a favorable personal credit profile, you’ll need to evidence a timely payment history, a low balance-to-limit ratio (typically less than 25%), and avoid negative reporting details such as foreclosures, judgment liens, and charge-offs.
High balances on your open credit lines, limited sources of open credit, and too many hard inquiries when applying for new credit can trigger low personal credit scores. Personal FICOs can vary substantially, ranging from 350 to 800, with scores 800 and above representing the highest score attainable.
A “perfect” rating generally requires a significant history of flawless credit performance. The different credit bureaus report personal credit scores, however, and each may have slightly different criteria for calculating your score.
The DUNS business score ratings typically correspond to the following numeric range:
80-100: Excellent payment history
70-79: Good payment history
60-69: Fair payment history
60-69: Fair payment history
Below 50: Unavailable or seriously delinquent payment history
This scoring system is considerably different than that of your FICO. While it is based on the same principles that apply to your personal credit, your business score looks solely at payment behavior pertaining to the enterprise itself, and not individual credit scores. Like your personal FICO, a strong business credit rating shows you’ve been making timely payments and satisfying your financial commitments over the past seven to 10 years.
While both personal and business credit scores rely on the same core rating concepts, your personal FICO ties to your individual borrower habits only. It looks at credit behaviors as they relate to your personal loans and revolving trade lines. A business credit score, in comparison, focuses solely on accounts managed by the entity itself.
A good personal credit score can open the door to better lending terms and more credit opportunities on both business and personal fronts. To ensure you maintain a good credit score, you’ll need to make timely payments on your accounts and satisfy all your financial obligations as agreed.
What is business credit, and how is it different than personal credit?
While business credit and personal credit follow many of the same principles in evaluating creditworthiness, they are, as mentioned, still fundamentally different. Your business credit profile links to your business’s name and contact information -not your Social Security Number (SSN).
If you are seeking business credit, remember to use your company name and include business contact information instead of your SSN when you apply. This approach ensures you separate the two scores and keep your business credit activities from impacting your personal credit profile.
You’ll also want to verify your assigned business credit score, if you have one, before applying for credit under your business’s name. While many companies start with personal loans and borrowing against credit cards, you’ll want to transition to building a business credit profile as quickly as possible to avoid intermingling your finances. This way, a negative credit event impacting your personal score won’t affect your business credit rating and company finances.
Cultivating your business credit begins with establishing a positive payment history over the span of years. This inevitably leads to a stellar profile. A well-documented record of making timely payments on your company-specific accounts and maintaining low overall debt levels in relation to your trade limits helps lay the groundwork for building exceptional business credit.
You can start this process of building your business credit by establishing a separate Dun & Bradstreet Paydex or DUNS number to differentiate between personal and business credit. This is the key to increasing your chances of landing an approval on your next business credit application.
You can also try creating accounts with partners and suppliers that specialize in reporting business credit information to the three main bureaus. Organizations like these will relay your payment history to the agencies and help you start developing a favorable business credit history. Additionally, banks often use reports from these bureaus to gauge a business’s creditworthiness.
If you don’t have a business credit score yet, consider the following tips to start building your profile right away:
Obtain an EIN to separate your personal and business credit
Ask your business to report to the rating bureaus
Make timely payments to all your business accounts
Dun & Bradstreet, Experian Business, Equifax Business
Impact on Loans
Affects personal loans and may influence business loans
Solely affects business loans
Documentation Required
SSN, Driver’s License, Proof of Income
Business financials, EIN, Proof of Liabilities
Timeframe for History
Generally 7-10 years
Generally 7-10 years
Importance of Timely Payments
Crucial for maintaining a high score
Crucial for maintaining a high score
Separate from Business?
Yes
Should be kept separate
Need more info on building business credit?
Seeking sound professional advice from an experienced business lending consultant is a great place to start developing and protecting your credit. The seasoned consultants at New Bridge Merchant Capital can supply you with invaluable guidance on optimal payment habits, debt levels, and the best loan products for enhancing your business credit score.
Our team will guide you through every step of the lending process by supplying you with a comprehensive list of the personal and financial documents required to open your next business loan account. For more on our premium credit and lending services, connect with a New Bridge Merchant Capital senior business finance consultant by applying online or call us now at 844-228-0593.
If you own a construction business, you’re likely already aware that cash flow management is fundamental to ensuring successful outcomes. Since labor and material costs have risen exponentially, many contractors struggle to secure financing from conventional banks and other traditional lenders because of the increased risk.
Fortunately, if this sounds like you, the team at New Bridge Merchant Capital has put together this comprehensive guide covering everything you need to know about contractor financing so you can quickly access the required funds to finish your upcoming projects.
In the following sections, you’ll learn about the advantages and drawbacks of popular contractor financing solutions in addition to how you can safely secure the working capital you need to successfully fulfill your proposals. Whether you’re working with a tight timeline, have a complex upcoming project, or seeking contractor financing for the first time, this guide has you covered.
How does contractor financing work?
Access to capital is one of the most critical yet challenging aspects of the construction industry. Paying for labor, materials, equipment, and other expenses before invoices are collected can make all the difference between running a successful operation and permanently shuttering.
For some industries, traditional contractor financing companies offer a reliable source of low-interest working capital. However, because of the rising costs and inherent risks associated with construction, such as lengthy collection cycles and retainage funds, it can take years to secure financing, and smaller construction companies often have difficulty accessing these funds at all.
Fortunately, specialized contractor financing banks and alternative business lenders like New Bridge Merchant Capital provide funding solutions to the construction industry that help them complete their projects on time and as agreed. By taking advantage of alternative lending services, construction businesses can stay afloat as they coordinate their successful outcomes.
Identifying the right financing source and getting access to suitable financing ensures that your construction business has the capabilities to thrive in today’s ever-shifting contracting market. Working with a trusted business lender is essential for any contractor and can shave off years of unnecessary effort and stress.
Financing options for contractors
Every seasoned builder knows that accessing suitable financing for their projects is imperative. Contractors, however, often face unique challenges when seeking financing options from traditional sources. To help ease the process, business banks like New Bridge Merchant Capital now offer several specialized financing alternatives to accommodate contractors.
For builders that need financial flexibility, these funding solutions can provide quick access to capital for larger proposals, sustained cash flow, and continued growth. With a multitude of emergent lending tools available, contractors can now confidently explore their financing options to access the most cost-efficient borrowing solutions that help manage their operations and bring their construction projects to completion.
Now, let’s take a look at some of the most popular financing options for contractors:
Invoice factoring
Invoice factoring is a common financing option for contractors. This is because it delivers a quick cash injection in exchange for your outstanding invoices. The process begins when the contractor sells the invoice to a factoring company, or factor, who, in turn, immediately issues a payment of 70-90% of the total invoice. The remainder of the invoice cost, minus a small fee, will then transfer to the contractor once the customer has settled the final payment with the factor.
Invoice financing has become a sought-after solution in recent years, owing to its ability to provide contractors with a near-instant influx of cash to cover their operating expenses after a shortfall. One of the primary benefits of invoice factoring is that payments are not set in place over the long term and are, therefore, adjustable to downward fluctuations in cash flow.
The only real downsides to factoring are that you need to provide the invoices that must be transmitted before the financing can be approved, and it can cut into your profit expectations for an indeterminable time. If the contractor can’t supply invoices to warrant the funding, they would still need to come up with sufficient capital to cover all costs associated with labor, materials, and equipment.
In this type of financing, the factor becomes the mediator of all activity, collecting money from the customer on the contractor’s behalf. Some business owners perceive this method as intrusive, as it can result in customers and partners feeling uncomfortable. In some cases, they may even refuse to participate in the arrangement. Likewise, the lack of regulation could lead to excessive or hidden fees, making it paramount to research companies before entering into a factoring agreement.
However, invoice factoring, on the whole, can be an effective financing solution for contractors that need fast access to working capital. Just remember to practice your due diligence when sourcing your ideal factoring solution to avoid excessive borrowing fees.
Equipment Financing
Construction companies looking to purchase operational equipment to boost productivity should explore equipment financing as means of supplementing their budgets. A secured bank loan lets you use the equipment as collateral which could lead to a lower interest rate than what you would otherwise find with an unsecured lending product.
In most cases, the bank will require you to make a down payment and show proof of your creditworthiness by evidencing financial statements. Some lenders may finance up to 100% of the equipment’s value, and disbursement amounts depend on how much liquidity you have in the assets. When you apply for this type of financing, the better your credit, the better rate you’ll receive.
The pros of equipment financing include access to lower interest rates and the potential for increased productivity from the machinery that can help offset borrowing costs. On the downside, you may be required to make a substantial down payment and will likely be subject to a credit check before your loan can be approved. Furthermore, should you default on your payments, the lender reserves the right to seize the equipment you’ll need to continue operating.
Equipment financing can be a viable option for companies in construction and other industries that need to upgrade their equipment. However, the right choice will always hinge on your unique requirements and risk tolerance.
Project cost financing
For smaller companies operating in the construction sector, securing the best financing for contractors upfront in the current lending environment poses several unique challenges. Fortunately, emergent solutions from alternative lenders specializing in construction can provide customized loan products to meet your specific requirements. Materials financing benefits contractors who want to expand their footprint and take on larger, more costly projects that can lead to greater profits.
Material purchases play a significant role in the cost of any construction project, eliminating the need to pay out of pocket or access a line of credit. A third-party provider pays the supplier on the contractor’s behalf, granting extended payment limits of up to 120 days.
Credit checks and financial statements may be unnecessary, as well, since the provider bases approvals on the creditworthiness of the project rather than the contractor. Generally, project cost financing offers higher spending limits, allowing the contractor to take on additional responsibilities without depleting their funds.
While you may encounter financing costs for the services rendered, those looking for the flexibility of low payments and the convenience of upfront project costs will likely still find material financing an attractive option.
In many cases, suppliers will issue discounts for cash payments. So, for construction contractors needing access to financing, project cost financing can be a great way to access the requisite materials and resources needed to keep their projects moving forward.
Home improvement financing
Home improvement financing is a lending solution in which the contractor becomes an intermediary between the lender and the homeowner. Since the financing company pays the contractor up front, this type of construction loan enables contractors to provide services for projects that may be beyond the reach of homeowners with limited funds.
Often free for contractors, this financing type is especially beneficial to businesses pursuing urgent home improvement projects. Builders have the assurance that they’ll be compensated almost immediately, allowing them to focus on the job at hand instead of chasing down unpaid invoices.
However, there are certain restrictions to consider. Home improvement funding is only available for home improvement projects, and each financing package has a limited amount. Repayment terms depend entirely on the homeowner’s creditworthiness.
This means the contractor’s rate of return can be unpredictable. Home improvement financing is a viable option for contractors working with clients who have access to limited funds, however.
Lines of credit
A business line of credit is always a reliable funding source for contractors. It gives you access to capital as needed, and you only pay interest on the amounts borrowed. The ability to withdraw and repay the funds as necessary ensures that businesses can continue operating within their budget and financial capacity.
A line of credit can either be secured or unsecured. An unsecured line of credit won’t require you to provide collateral to back the loan. Although this may be a more attractive option because it is simpler and requires paperwork, you can expect to come with a considerably higher interest rate. Secured lines of credit, where you provide collateral to secure the loan, typically include a higher credit limit and a lower interest rate.
Despite its many benefits, there are a few risks associated with business lines of credit to be aware of. They generally have a higher interest rate than a traditional loan, and borrowing costs are usually higher. Likewise, before getting approved for a line of credit, lenders require you to demonstrate an exceptional financial history and a strong credit score.
A business line of credit can be an extremely effective option for virtually any construction company. It gives you instant and ongoing access to funds as required, and secured options offer attractive interest rates. Once you evaluate the risks, a line of credit can be an invaluable source of working capital.
The pros and cons of contractor financing
If you have any experience with business borrowing, you already understand the challenges associated with contractor financing. It can be a gamble for traditional lenders that consider a multitude of factors when evaluating your credit risk. However, several new options have subsequently surfaced in the lending industry in response to this phenomenon.
And while many may seem appealing at first glance, some options can prove to be cost-prohibitive for contractors operating on thin margins. Factoring and merchant cash advances, for example, are potential solutions that produce quick results. But these options fall outside the realm of traditional lending and are not subject to the same regulatory environment.
With that aside, you’ll find several constructive methods for financing your building projects, and these options can help your company become more financially sound. Working with a trusted business loan adviser who is well-versed in construction lending and has access to the latest alternative financing will be able to set you on the right path.
A proper contractor financing solution frees up invaluable working capital and improves the cash flow of your forthcoming projects. Not only does it help mitigate risk, but it also positions you better to bid on larger projects and take advantage of more seasonal opportunities.
Here are a few more pros and cons to consider:
Pros
Frees up valuable working capital
Decreases risk for large projects
Streamlines cash flow
Seasonal opportunities
Cons
Lack of regulation
Costs can be higher than expected
Credit risk analysis can be complex and time-consuming
Getting approved for contractor financing
Getting qualified for contractor financing starts by convincing a lender that you can repay the money they supply. Business loan service providers are increasingly looking at more than just financial statements and credit scores when assessing creditworthiness.
Traditional sources of financing, such as bank loans and trade credit, still require a review of the contractor’s credit score and financial statements. Working closely with your financial manager or accountant is vital to ensuring an accurate reporting process, which can eventually help builders like you qualify for low-cost financing.
Securing the best financing options necessitates developing a good credit history, staying organized, and presenting accurate financial statements to your preferred lender. When you effectuate the strategies we’ve outlined here and consult with an expert business loan advisor, you can vastly improve your odds of qualifying for contractor financing.
Need help sourcing the ideal funding solution for your construction company?
As a small business owner, you’ll find more lending options available to meet your objectives than ever before, and New Bridge Merchant Capital can help you find the ideal solution to fund your next project. For more on our complete suite of business loan products, apply online to see what you qualify for. Or, for current loan pricing, call us now at 844-228-0593.
Factor Rate vs. Interest Rate: Understanding Small Business Loan Rates & Fees
Because there are so many terms to describe the various loan fees you’ll pay, calculating the total costs of borrowed capital can be confusing for some business owners and financial decision-makers.
Knowing how to distinguish between factor rates and interest rates plays a vital role, however, in determining your total borrowing costs. Understanding the key differences we highlight below between the two pricing models will help simplify the process of determining which funding option is best for your business.
Factor rates and interest rates account for two of the most commonly used approaches lenders use to price business loans and other forms of financing. Factor rates are usually expressed as a decimal number and represent a flat fee within your loan that lenders charge based on the total disbursement amount.
Interest rates, on the other hand, are figured as a percentage. They are calculated on the basis of the total amount borrowed. Once you understand the distinction between factor rates and interest rates, you’re in a better position to encounter cost-effective financing options for your business and keep your borrowing costs low.
In this post, we will explore the differences between factor rates and interest rates before providing a concise overview of how to calculate your total borrowing costs.
We’ll discuss the advantages and disadvantages of each, in addition to how you should compare the two and make an informed decision about which financing option is best for your business.
By the end, you’ll understand how to evaluate the costs associated with taking out a small business loan and decide if a factor rate or interest rate is best for your specific application.
What are factor rates?
The factor rate accounts for one of several core concepts in business finance. Lenders use them to establish the cost of securing capital. Factor rates express themselves as a percentage of the total amount borrowed. Creditors use this formula to calculate the total amount you’ll pay on a loan before presenting those fees to borrowers in their loan offers. The associated costs include the principal, any applicable fees, and the factor rate itself.
Factor rates are determined by the creditor, while loan pricing takes into account the borrower’s creditworthiness and the type of loan requested. Higher credit scores and shorter terms usually result in lower factor rates, and vice versa. Likewise, the amount borrowed and the industry you’re operating in also affect the factor rate.
After getting a handle on factor rates, you’ll be in a better position to explore your financing options. Knowing how factor rates work will help you evaluate the cost of obtaining capital and ensure you select the best loan terms to suit your unique operations.
Factor interest rates often vary widely between lenders, so remember to shop around and compare offers to avoid paying too much for your loan. In business funding, the average factor rates fall between 1.1 and 1.5.
What are interest rates?
Business loan interest rates are essential for evaluating your total borrowing costs. When estimating loan pricing, you need to consider the interest rate and how it impacts the total fees you’ll pay over the life of your loan.
Interest rates, like factor rates, can also differ from lender to lender and are generally determined by aspects such as the size of the loan, the borrower’s creditworthiness, and the intended use of the loan.
You can take out fixed-rate funding, meaning the rate will remain the same for the duration of the loan. Business lenders offer variable-rate products too, where the rate may fluctuate with an external benchmark. A fixed interest rate can provide borrowers with certainty and stability, whereas a variable interest product can offer the potential of lower interest payments if the benchmark rate falls.
When calculating the cost of a loan, remember to evaluate all the associated costs, including fees, closing fees, and interest rates. This approach helps you save money in the long run. Consider, as well, that the lowest interest rate is not always the best deal. As a borrower, you should analyze every aspect of your loan carefully to determine if fits your requirements.
Factor rate vs interest rate: a side-by-side comparison
Interest rates and factor rates are two different concepts, but they’re both used to price business loans. If you’re seeking capital, understanding how interest rates factor rates compare and contrast can translate to significant long-term savings.
Factor rates are the fees lenders charge based on a set percentage of the amount borrowed. This rate is determined by the lender and is usually applied as a one-time fee. Factor rates are often higher than interest rates because the lender takes on more risk by extending a loan with no interest payments. Most companies use factor rates in their short-term financing solutions, and these types of loans are typically reserved for businesses only.
Interest rates, on the other hand, are calculated as a percentage of the amount borrowed. The lending fees work themselves into the loan as periodic payments over the specified term and can vary based on the type of loan and borrower credit score. Interest rates are lower than factor rates most of the time. You can use interest-rate loans to obtain both personal and business capital.
Factor rates and interest rates, in sum, represent two distinct concepts lenders rely on to establish risk-based pricing on their loans.
How are factor rates determined?
Business lenders often use factor rates to determine how much a borrower will pay in interest and fees for financing. A factor rate is an interest rate expressed as a single multiplier as opposed to a percentage rate. Lenders base this multiplier on the borrower’s creditworthiness, the size of the loan, and the length of the repayment term.
When evaluating your borrower profile, the lender will assess your creditworthiness by looking at your payment histories and both your personal credit and business credit score if you have one. They will then determine the risk your business and you present.
To obtain your personal FICO score, the lender runs a credit check to assess the Your ability to repay the loan. Creditors also look at the size of your loan, the length of the repayment term, and your existing cash flows to establish the factor rate for the financing it intends to offer you.
You can use the factor rate to calculate the total cost of the loan. The borrowing expenses include the loan’s principal and any fees associated with originating the funding. The factor rate also tells you your total repayment amount. When you understand how the factor rate works, you safeguard yourself against overpaying for your next business loan.
To recap, factor rates are:
Determined by the lender and are based on a variety of factors, including the borrower’s credit score and financial history.
Based on the borrower’s ability to repay the loan.
Lower if your credit score is high.
Established by loan type and total loan dispersal amount.
Key factors in determining interest rates and repayment terms.
Before applying for your next business loan, be sure to have a firm grasp of factor rates because this will help you choose the best loan product that offers the most competitive terms and pricing.
What is the factor rate formula?
Businesses can use the factor rate formula to calculate the cost of a loan. Knowing this formula helps determine the total cost of a loan and whether or not you’re making a reliable financial decision. The formula takes the principal amount of the loan, the factor rate, and the duration of the loan into account to calculate the total cost of the offer.
The factor rate is expressed as a percentage and calculated by dividing the total cost of the loan by the principal amount. This rate is then multiplied by the term of the loan to determine your loan’s total cost.
For example, if a business takes out a loan of $5,000 with a factor rate of 1.2% and a term of three months, then the total cost of the loan would be $6,000 ($5,000 x 1.2% x 3 months). Knowing the factor rate formula helps you make an informed decision about the cost of a loan and whether it is the right choice for your business.
Converting factor rate to APR
The annual percentage rate (APR) is a key metric for evaluating the cost of a loan. You should understand how to convert a factor rate to APR because it gives the most reliable picture of your real-world borrowing costs. Here’s how it works.
First, make sure you comprehend the factor rate described above. To reiterate, the factor rate is a type of rate used by alternative lenders and is expressed as a multiple of the loan amount, rather than a percentage. For example, if a factor rate is 1.2, that means that the borrower pays 1.2 times the loan amount in total interest and fees.
To convert a factor rate to APR, simply divide the factor rate by the number of months in the loan term and then multiply the result by 12. To make the calculation easier, you can always use a Factor Rate to APR calculator.
Here are three examples of how to convert factor rate to APR:
For a 3-month loan with a factor rate of 1.2, the APR would be 48%.
For a 6-month loan with a factor rate of 1.35, the APR would be 45%
For a 12-month loan with a factor rate of 1.5, the APR would be 15%.
Making an informed loan decision about which loan is best for your business can be a challenge. But when you know how to convert a factor rate to APR, you’re in a much better position to select the right loan product.
How should you choose between factor rates and interest rates?
The decision between factor rates and interest rates is frequently a difficult choice for small business owners. Before you commit, you need to weigh the pros and cons of each option so you don’t overpay for your loan.
The rates are almost always higher than interest rates, however, making factor rates the more expensive solution over the long run. Factor rates require a personal guarantee, which means these loans a risky proposition when faced with business owners who may not be able to cover their losses if the business fails.
Interest rates, on the other hand, are typically lower than factor rates and are spread out over the duration of the loan. This is beneficial for companies that need a longer-term loan structure, as the total cost of the loan will be lower than that of a factor rate loan.
Interest rates can be effective solutions for businesses with a stable cash flow, since the loan payments spread themselves out over the loan term. The trouble with interest rates, though, is that they can be more difficult to qualify for than factor rates due to stricter lending requirements.
Ultimately, you should base your decision between factor rates and interest rates on the specific needs of your company. Consider the advantages and disadvantages of each option, and work with an experienced business banking partner like New Bridge Merchant Capital to help guide you on your decision.
Searching for alternative business funding?
Alternative lending solutions, such as merchant cash advances and factor rate funding, offer businesses a vast range of advantages compared to traditional financing options. The loan application process is more streamlined, with less paperwork, and these products often come with more lenient approval requirements.
Furthermore, the processing time is significantly reduced, with funding often available within a single business day. Alternative financing solutions ultimately offer more flexibility when it comes to negotiating the terms of your business loan.
Learn more about alternative funding by connecting with New Bridge Merchant Capital on our website or reach out to a dedicated business finance specialist now at 844-228-0593.
Secured vs. Unsecured Small Business Loans: An Overview of the Two Business Financing Solutions
Business loan statistics show that small businesses widely use both secured and unsecured loans. In 2020, $604 billion in secured small business loans were issued compared to $350 billion in unsecured small business loans. Understanding the key differences between these two major financing options is critical for any small business owner.
Understanding the differences between secured and unsecured business financing is the first step in deciding which solution is best for you. In this article, we’ll walk you through the differences between the two options, discuss their pros and cons, and provide several key considerations to remember when selecting your next business loan.
Secured and unsecured loans are two distinct loan options available to small businesses. Secured loans are backed by collateral, such as real estate, equipment, or inventory. This business funding option allows lenders to minimize their risk so they can, in turn, offer lower interest rates.
Unsecured loans, on the other hand, are not backed by collateral and require the borrower to have a strong credit history. These loans usually come with higher interest rates. But they are often easier to qualify for and do not ask borrowers to place any of their own assets at risk.
In the following sections, we will compare and contrast secured and unsecured loans, discuss the pros and cons of each option, and provide considerations to keep in mind when selecting the next loan for your business. By the conclusion, you’ll have a better grasp of the two financing options and be equipped to make an informed decision on which loan type best meets your business needs.
The primary differences between secured and unsecured business loans
Is a small business loan secured or unsecured debt? This is a key question because understanding the differences between secured and unsecured business loans is essential for any owner of smaller company in the market for business funding.
Secured loans require businesses to pledge an asset as collateral for the loan, such as real estate, inventory, equipment, high-dollar personal assets. Unsecured loans, in comparison, do not require any collateral but may require a guarantee from the business owner.
When considering which type of loan to take out, understanding the risks associated with each product is vital. A secured loan is often easier to obtain, as the lender is assured at least partial repayment should your business default.
The downside is that your business may lose its pledged asset if you fail to repay. With an unsecured loan, the lender is taking a risk by not requiring collateral, and this risk is often reflected in higher interest rates or stricter repayment terms.
It is no less important to consider the purpose and objectives of your loan when deciding between secured and unsecured business loans. Secured loans may be a better choice for substantial investments or long-term financing, as the lower interest rates can result in significant savings over time.
In contrast, unsecured loans may be preferable for smaller investments due to their flexibility and quick access to funds. Understanding the core differences between these loan types will help you make an educated decision about which solution works best for your unique application.
Ideal Uses for Each Loan Type
Secured loans are better for:
Purchasing high-value assets like real estate
Acquiring equipment for growth and expansion
Refinancing more expensive debt
Financing large, long-term investments
Unsecured loans are optimal for:
Covering operating expenses and payroll during slow periods
Bridging cash flow gaps
Financing smaller investments
consolidating higher interest debt
What are the pros and cons of secured small business financing?
So, do small business loans require collateral? Not all the time, but collateralized loans are a good way to keep borrowing costs low. Secured business loans can be an excellent option for small businesses looking to finance significant portions of their operations. However, they come with advantages and disadvantages that should be considered carefully before committing to this type of loan.
The primary advantage of a secured business loan is that it provides a greater chance of approval. If a business can’t qualify for an unsecured loan due to poor credit or lack of collateral, a secured loan is most often the surest path to obtaining the required funds. Secured loans often, moreover, come with lower interest rates due to the presence of collateral, meaning that the business can save money over the life of the loan.
As mentioned, secured business loans are not without their drawbacks. either. For example, if the loan you fail to repay the loan, the creditor will use that collateral to recover the debt you owe. This means that the business stands to lose whatever asset it put up as collateral, which, depending on the results, could be damaging if not impossible to recover from.
Businesses must be mindful of their loan terms and payments, as a missed payment or default can cause the loan to be called in and the collateral seized. Remember to avoid borrowing more than you can repay.
Secured business loans option for small businesses can help you grow your business by leagues, but just be sure it’s the right lending solution for meeting your objectives. Weighing the advantages and disadvantages and grasping the complex terms of your loan is the most dependable way to avoid committing to the wrong loan product.
What are the pros and cons of unsecured small business financing?
Like secured loans, small businesses often rely on unsecured loans to finance their operations and expand their business. This type of financing provides businesses with needed capital without putting up any collateral at all. Despite the advantages of unsecured business loans, there are a few drawbacks to consider, as well.
The primary benefit of unsecured business loans is that they do not require the business to stake personal or business assets. This makes it easier to access the loan and gives companies like yours more flexibility in their financial options. Without collateral, lenders are more likely to deny a loan request.
The downside of unsecured business loans is that they typically come with higher interest rates than secured loans. Likewise, businesses may be subject to higher levels of scrutiny from lenders who offer unsecured financing. This makes it more difficult for business owners with less established credit histories to access these types of loans.
Unsecured business loans offer a way for small businesses to finance their operations and expansion without risking their hard-earned assets. However, you should be aware of the associated risks, like higher interest rates and more stringent credit requirements.
Understanding the pros and cons of secured and unsecured business loans helps businesses can make an informed decision and choose the financing option that is right for them.
Qualification Criteria and Getting Approved
To get approved for secured financing, you’ll need valuable assets to pledge as collateral plus a reasonable debt-to-income ratio. Minimum credit scores start around 600.
Unsecured loans have stricter requirements. You’ll need a strong personal credit history with scores over 680 plus solid revenue and time in business – typically 2+ years.
For either loan, improving your credit score, reducing debt obligations, and boosting profitability will strengthen your chances.
Small business loans secured or unsecured: how should you decide?
At New Bridge Merchant Capital, we understand the complexity of securing business funding and the importance of making an informed decision. We offer a wealth of knowledge and guidance to help you determine the best funding option for your company.
Call us today at 844-228-0593 to learn more about the benefits of secured and unsecured business funding. Our team is here to help you make the most of your business opportunities.
Small businesses across the United States are increasingly turning to alternative lenders for access to expedient working capital. With the rise of fintech, creditors in the alternative sphere now offer more options to small business owners who need fast cash than ever before.
From merchant cash advances and invoice financing to online business loans and lines of credit, you’ll encounter a wide range of funding options available to small business owners who need quick access to working capital.
So, are working capital loans a good idea? This post will attempt to answer this question by highlighting the various options that small business owners have for accessing fast working capital in the emergent alternative lending market.
We’ll also cover key considerations for small business owners considering taking out a loan from an alternative lender. By the end of the article, you will have a better understanding of the different funding options available and the potential benefits and drawbacks of each.
The challenges of attaining bad credit loans for business
The economic crisis of 2008 had a devastating impact on the global banking sector, making it difficult for businesses to secure the capital they need to continue driving revenue and growth. At the time, banks were forced to tighten their lending standards, and struggling companies had to look for alternative sources of capital.
The traditional business lending model has always been to turn to brick-and-mortar-style community banks for loans. However, since 2008, banks have been much more selective about who they lend to, making it difficult for businesses to access conventional financing. The credit crunch in the late-2000’s made it that much more difficult for companies like yours to qualify for loans. And even if they do, the terms are often less favorable than they were before ’08.
Fortunately, alternative lending solutions have emerged to fill this active void. These solutions provide businesses with a range of options that allow them to access the capital they need without the same stringent requirements seen in traditional banking.
Several alternative funding options exist, such as invoice financing, fixed loans, lines of credit, and merchant cash advances. These solutions are often faster and more convenient than conventional financing, and they provide businesses with the flexibility they need to meet their financial goals.
Alternative lending solutions have become increasingly popular since 2008. They offer businesses a viable alternative to conventional financing. These solutions give companies access to capital that is often more convenient and less expensive than conventional business loans, helping ensure their long-term financial success.
Does your personal FICO score matter in business lending?
As a business owner, you may be unaware of the full impact your personal Fair Isaac Corporation (FICO) score can have on your ability secure business funding.
Many banks and other lenders use the five C’s of credit, which include character, capacity, capital, conditions, and collateral, to assess the overall risk of a loan and determine their risk-based loan pricing. Much of this information is displayed in your personal credit profile.
Creditors look at personal FICO scores to assess the creditworthiness of borrowers, while business credit scores are used to evaluate a company’s ability to repay. Business credit scores are typically derived from an agency’s overall financial performance and credit history, while personal FICO scores are based on an individual’s credit history, payment history, and total debt load.
Business credit scores are usually rated by Dun & Bradstreet, Experian, and Equifax. Each agency has its own rating system, with scores ranging from 0 to 100 depending on the agency’s criteria.
Your personal FICO score ranges from 300 to 850 and can be divided into five categories:
Exceptional (800-850)
Very Good (740-799)
Good (670-739)
Fair (580-669)
Poor (300-579)
Conventional lenders generally characterize scores between 300 to 629 as “bad credit.”
Traditional banks frequently reject small business loan financing due to a low personal score. However, most alternative lenders are more likely to provide bad credit business loans based on a business’s potential rather than the owner’s personal credit profile.
Most banks regard your personal FICO score as a key element of the character portion of the five C’s of credit discussed above. It is an indication of your financial responsibility and provides some insight into your creditworthiness and risk as a borrower. A higher FICO score can signal to lenders that you are a reliable borrower, while a lower FICO score usually flags you as a higher-risk liability more likely to default on your loan.
In addition to the FICO score, lenders will also consider other aspects of your character when determining whether to extend a loan. This often includes looking at your payment history, business accounts, and other financial obligations. Alternative lenders similarly want to know your industry experience and background in management along with any additional evidence of your financial and professional stability.
Business creditors need a guarantee they are taking on the least possible risk when approving your loan. Your personal FICO score is an important component in the evaluation process, and it should not be overlooked. Taking the appropriate steps now to establish a good credit score and keeping a clean financial history can go a long way in helping you access the business funding you need.
Applying for alternative low-credit business financing
Applying for a low-credit business loan from an alternative business financier can be strenuous, especially if you need quick access to funds. It is, therefore, critical that you understand the application process to ensure your loan isn’t rejected.
The first step toward applying is comprehending the prospective loan’s requirements. Most alternative business financiers will have specific conditions before dispersing the funding, such as the loan amount, repayment terms, and credit score. You should also carefully research any unique stipulations for your loan, such as the necessary type of collateral or security.
The second step is to fill out an application. Expect the application to include questions about the business, the loan amount, and other financial information. Be prepared to provide details about your business and its finances. Make sure to answer every question accurately and honestly. This increases the odds of a fast approval.
The final step is to submit the loan application and anticipate a response. An alternative business funding underwriter will review the application and determine if the loan is approved or declined. Also be ready to supply additional documentation or proof of business healthy operations, if requested by the lender. Once your application is approved, the funds should be available within a few days.
Applying for a low-credit business loan from an alternative business financier is a relatively straightforward process. Understanding the requirements, filling out the loan application correctly, and submitting the necessary documents for underwriting review gives you the best chances of an easy loan approval.
What are the options for securing a bad credit business loan?
Obtaining a business loan for bad credit during unstable economic times can be challenging, especially when trying to get your business off the ground. There are, however, a few practical strategies for improving your chances of success.
The first option is to put up collateral as a pledge for the loan. This could include residential or commercial real estate, stock or bond portfolios, or even a luxury boat or vehicle. The assets serve as a guarantee to the lender, indicating that you’ll repay the loan. This is a common practice for business owners with challenged credit.
Equipment financing is another proven approach. This option is ideal for businesses that need extra capital for new equipment purchases. Your equipment serves as financial collateral, ensuring you pay the loan off fully, usually after a few years.
Invoice financing is another reliable solution for businesses with bad credit. The borrower sells their unpaid invoices to the lender, who will then advance funds to cover the cost of the loan.
Finally, you can always enlist the help of a co-signer, typically a person with a good credit score and proven track record of paying off debt. The co-signer is ultimately responsible for repaying the loan if your business cannot.
By considering the above funding options, and finding the right alternative lending solutions, low-credit business owners can start taking the necessary steps toward increasing improving their credit profiles to access less expensive financing in the future.
What are the different alternative business funding loan types?
Businesses of all sizes need access to capital to finance their operations. Traditional bank loans can give companies the funds they need, but they’re hardly the only option. Alternative lending solutions provide businesses with the capital they need to succeed while allowing them to remain flexible and agile at the same time.
One type of alternative funding is the working capital loan. This loan enables businesses to access funds to cover their day-to-day operations, such as payroll and inventory. Businesses can use these funds to bridge gaps in their cash flow.
Another form of alternative financing is invoice factoring. This loan allows businesses to access funds based on the value of their invoices. You can use the cash generated from these loans to cover operational costs, such as payroll and inventory.
Business lines of credit and short-term collateralized loans are also two types of alternative lending options. Business lines of credit give you access to a revolving trade line usable for any purpose. On the other hand, short-term collateralized loans require businesses to stake collateral in exchange for funds and are often dispersed in one lump sum.
Alternative lending solutions are one reliable way for businesses to access capital quickly and avoid costly operation disruptions and stifled growth. Non-traditional financing enhances your flexibility and agility, making it easier to achieve your long-term strategic growth objectives. As such, businesses should consider the available options and determine which one is best suited to their needs.
Working capital loan vs line of credit: how do they compare?
Business lines of credit and working capital loans are each popular financing options for businesses in their own right. They both have advantages and disadvantages to consider before making a final decision.
So, what is a working capital line of credit? Business lines of credit provide short-term access to funds when businesses need them. They are typically easier to acquire than a loan, and may not require collateral.
The repayment terms are also more flexible, allowing companies to draw against their lines whenever they need additional funds. On the downside, they tend to have higher interest rates and variable repayment terms that can quickly become a challenge if the loan is mismanaged.
Working capital loans are always a reliable option for businesses that need a considerable sum of money upfront. They usually provide access to more funds than lines of credit and have lower interest rates.
The repayment period is most often fixed, and the loan is usually repaid over a longer time. However, it can be difficult to obtain a working capital loan, since most lenders require you to stake a portion of your assets before approving an application.
Businesses should carefully consider the pros and cons of each option before making any decision to accept funding. A business line of credit can be a great way to access capital quickly and when you need them, but the higher interest rates are often costly.
Working capital loans tend to be the better option for businesses that need to make large upfront investments. Remember that lenders may still require collateral, even if your credit score is high. Weighing the advantages and disadvantages of each option before accepting a loan offer is no less important than ensuring you get into the right business loan product.
Competitive alternative financing solutions from New Bridge Merchant Capital
The bottom line is that exploring alternative and creative business financing options can be a great way to secure the necessary funds you need to grow your business. Whether it’s investing in new technology or expanding into another market, your company can profit from a bevy of alternative business financing solutions.
For those looking to expand their business or acquire additional assets, New Bridge Merchant Capital can help you encounter the right financing option that aligns with your long-term objectives.
Don’t let a lack of conventional funding options limit your potential. Take the first step now by applying online or contacting a senior New Bridge Merchant Capital business lending consultant at 844-228-0593 to see what you qualify for.
The restaurant industry is fiercely competitive and often unpredictable. With ever-changing customer demands and the need to stay ahead of the curve, it can be difficult for restaurants to find the financial flexibility required to make urgent changes. Leveraging merchant cash advances is one reliable way to gain fast access to the required capital that lets you make necessary adjustments to your approach.
Merchant cash advances (MCAs) offer an alternative to traditional small business loans, providing restaurants like yours with expedient working capital solutions. When you secure a lump sum of money, as in a cash advance, you can finance your operations without waiting months for your customers to pay their invoices.
New Jersey Merchant cash advances let restaurants make necessary improvements and upgrades, purchase new equipment, and hire additional staff to support their expanding operations. The repayment process is flexible and tailored to your business. The custom solution ensures that the merchant cash advance is manageable enough for your restaurant and you don’t take on too much debt.
In this article, we’ll cover why restaurant businesses like yours should consider a merchant cash advance as a dependable working capital solution.
What are merchant cash advances (MCAs)?
If you’re a restaurant owner exploring alternative financing options for your business, a merchant cash advance (MCA) is always an effective solution. A merchant cash advance is a type of financing that allows you to access capital quickly in exchange for a fixed percentage of your future credit card sales.
When you opt for a New Jersey merchant cash advance, you will receive a lump sum of cash upfront. This money can be used to reinvest in your business and cover unexpected financial shortfalls that are outside of your control. To repay the advance, you’ll pay back a pre-determined percentage of your future credit card sales. This repayment method is beneficial because it lets you make payments as your business grows. You won’t be tied to a steep fixed monthly payment.
In addition to this, a merchant cash advance requires no hard-asset collateral. For businesses that lack the necessary assets to secure a loan, MCAs are always a good option. The MCA approval process eliminates the need for lengthy paperwork or credit checks and is typically much faster than what you’ll experience at a traditional bank.
A popular alternative financing option for restaurants, MCAs come with a fast approval process, flexible repayment structure, and lack of collateral requirements, a merchant cash advance presents an effective means of accessing the capital you need to grow your business.
What are the benefits of merchant cash advances for restaurants?
Merchant cash loans give restaurant businesses the ability to receive a lump sum of cash quickly and without waiting weeks or months for your loan to be approved. This is especially beneficial in times of economic uncertainty, when traditional lenders may not be willing to lend to smaller companies with limited holdings. Merchant cash loans are, furthermore, used for diverse applications, including facility upgrades, funding marketing and advertising campaigns, and covering real estate costs.
Unlike traditional bank loans, merchant cash loans do not depend on your borrower risk profile. Instead, lenders evaluate your creditworthiness based on your credit card receipts, meaning that companies with poor payment histories can find funding with a merchant cash advance.
MCA repayment terms are flexible, with the payments taken directly from the anticipated credit card sales. This is especially valuable for restaurant businesses because it means you can remit payments regularly as you make sales and keep your business cash flow positive.
The advances provide an invaluable financing solution for low-credit businesses. With quick access to funds, flexible repayment terms, and no need for perfect credit, merchant cash loans are a reliable solution for any company that needs to overcome an unexpected shortfall, quickly. If your restaurant needs a fast cash injection, consider a merchant cash loan from New Bridge Merchant Capital to help shore up your long-term financial success.
Merchant cash loans for low-credit restaurant owners
As a restaurant owner with a low credit score, it’s easy to feel like you’re perpetually stuck between a rock and a hard place. You realize you need additional funding to help your business succeed, but your challenged credit prevents you from accessing conventional loans that are notoriously difficult to qualify for. Fortunately, merchant cash advances offer a way of escaping this misfortunate quandary and can help you reestablish your personal and business credit profiles.
You can use merchant cash advances for quick access to working capital that allows you to modernize your kitchen and hire additional staff. Unlike traditional loans, merchant cash advances are not dependent on credit scores. Instead, lenders establish your limits based on the volume of credit card receipts your business collects. This financing option lets restaurant owners with low credit scores secure the financing necessary to keep their businesses afloat.
Merchant cash advances offer more flexible repayment terms than traditional loans. This makes it easier for restaurant owners to manage their cash flow and pay back the advance on their own terms. Merchant cash advances give you the immediate financial support you need to let your restaurant thrive while, at the same time, they can help develop your business credit profile.
Explore your MCA lending options with New Bridge Merchant Capital
To sum it up, restaurant owners with low credit scores can benefit immensely from merchant cash advances because they give them fast access to working capital. MCAs can help establish or reestablish your business credit. Meanwhile, you’ll build a relationship with a trusted business banking partner and continue funding your restaurant operations.
Positive cash flow is the lifeblood of every company. Without adequate access to resources and capital, many small businesses consistently struggle to expand their footprints, cover their operating expenses after a shortfall, and maintain a competitive posture within their respective industries.
Fortunately, alternative lending solutions from New Bridge Merchant Capital offer businesses like yours several fast, low-credit funding solutions that can get your organization back on a positive growth trajectory.
Smaller companies now have access to a diverse range of alternative business financing products, including bad credit loans for business owners. Qualification for these loans depends on your creditworthiness, the size of your business, and your respective industry.
Short-term loans, lines of credit, equipment financing, inventory financing, and other financial instruments can all provide companies with the capital they need to reinvest in their operations and continue driving business revenue and growth.
The alternative lending market offers companies like yours convenient payment schedules and more flexible funding solutions than conventional banks. When you leverage the right business funding solutions, you’ll posture your small business to remain competitive for years to come.
Small businesses have always been vital to the US economy, but traditional methods of accessing small business funds have become increasingly difficult since the financial crisis of 2008. The average business owner is expected to continue to face a host of challenges when it comes to securing financing that can help their companies thrive amid the ongoing economic uncertainty.
Among the most significant obstacles small business owners will face this year is access to fast working capital. Banks and other traditional lenders will likely remain reticent to lend when it comes to small businesses.
Fortunately, alternative financing options are available. Low-credit funding solutions, such as invoice factoring, merchant cash advances, and asset-based lending, each give small business owners an opportunity to access the funds they need to cover their essential expenses and expand their operations.
Alternative business lending solutions are designed to be more accessible than traditional bank loans and can provide financing quickly and with little required paperwork. These fast business funding options, likewise, provide a viable option for companies that cannot qualify for traditional bank loans. By taking advantage of these solutions, small business owners can get the funding they need to launch and expand their operations.
Evaluating the benefits and costs of small business lending
Smaller companies often need access to additional capital to keep up with the demands of their customers and the rapidly evolving economic clime. Taking out a small business loan can be an effective way to encounter fast capital. However, business owners still need to carefully weigh the benefits and costs of taking out a potentially expensive loan.
When evaluating the benefits and costs of taking out a small business loan, it’s important to consider the short and long-term implications of the finance offer. In the short term, a loan can provide the capital necessary to make necessary investments in the business, such as purchasing new equipment or hiring additional employees.
This can be instrumental in helping your company meet its short- and long-term financial objectives. This access to fast working capital solutions undeniably helps businesses become more profitable and stable while introducing technologies, such as automation, that enhance their flexibility and adaptability.
Nonetheless, it’s important to understand the potentially high expenses associated with taking out a loan, such as the interest rate, closing costs, and repayment terms. The interest rate and fees can vary depending on the lender and the type of loan taken out.
Doing sufficient research to find the most competitive loan offer is therefore crucial. It’s no less important to carefully consider the repayment terms to ensure you can pay the loan back without putting too much pressure on your operating budget. Remember that the best loan products for your purposes may not always come with the lowest rates, as well.
Small business loans can be a great way to access additional capital, but it’s no less important for business owners to carefully consider the benefits and costs of the loan before making a final decision. Doing the necessary legwork in advance and understanding the short and long-term implications of accepting a lending offer is the best approach for assuring you make an informed decision about whether or not taking out a loan is the right choice for your business.
What are the alternatives to conventional business financing
The business lending market has endured significant changes over the last three years alone. The evolution of business lending has been especially evident with the emergence of low-credit alternatives to conventional business funding.
This post-2008 shift introduced countless new opportunities for businesses to obtain additional working capital, even those that may have had difficulty securing traditional financing.
Alternative business lending is an innovative form of financing designed to help businesses access capital quickly and after minimal paperwork. These lenders focus on providing capital to business owners who may not otherwise be able to secure financing.
Those with a limited credit history or high-risk profiles will likely encounter restricted funding options through conventional lending channels, if any. The emergence of alternative lending solutions means you can still get the funds to finance upcoming expansion projects and meet other operational requirements without engaging in a lengthy and arduous loan application process at a traditional bank.
The increased cost of traditional business loans, which can be cost-prohibitive for some businesses, and the fact that most legacy financial institutions are unwilling to take in the risk has undoubtedly complicated the business lending market.
Luckily, New Bridge Merchant Capital offers more flexible repayment terms, allowing businesses like yours to streamline cash flow management and avoid the lengthy approval process you’ll encounter at traditional banks.
Trusted alternative business lending partners make it easier for their customers to obtain quick financing after minimal hassle. The extra working capital will strengthen your existing customer relationships, attract new clientele, and safeguard your business against unexpected economic events that result in a financial shortfall.
Many analysts agree that the emergence of low-credit alternatives to conventional business funding has been a wholly positive development for small businesses and the wider economy.
Access to more flexible financing options means your organization can get the capital it needs to grow and thrive under virtually any economic conditions. The extra working capital alternative lenders supply will make it easier to extend your reach and deepen existing customer relationships.
Lowering your operating costs in the post-COVID economy
The coronavirus pandemic has brought a lot of uncertainty and financial hardship to small businesses, and these impacts have effectively disqualified many organizations from attaining conventional bank funding.
With the economy still struggling from the impacts of COVID-19, implementing cost-cutting measures to reduce expenditures is paramount. There are essentially four ways your small businesses get can started on this right now.
If you’re unsure whether or not you can access funding at the moment, but know you’ll need it in the future, start trying to improve your credit and financial situation by reviewing your monthly expenses and looking for ways to cut your current costs.
Likewise, you should attempt to negotiate better terms with vendors and draft new, more favorable agreements between your external partners and you. Review your pricing structure and consider raising prices to offset your higher expenses.
The second approach is to look for ways to streamline operations and make the most of existing resources. This includes automating processes and leveraging technology to reduce manual tasks and increase efficiencies.
Thirdly, you should be strategizing to find ways to increase your existing customer base. Leverage online marketing and social media to reach new customers and create awareness about your business. You can also focus on customer retention and loyalty programs to encourage repeat customers.
And, lastly, look for ways to minimize capital expenditures and focus on more economical solutions. Consider leasing instead of buying assets and look for ways to use existing equipment more efficiently.
There are ways small businesses can optimize their resources during uncertain times. By focusing on cost-cutting measures and finding ways to increase efficiency, you can keep your operations afloat, even under turbulent economic conditions.
Alternative sources of capital for low-credit small businesses
Small businesses frequently struggle to remain competitive and profitable in today’s unpredictable marketplace. This is true even when they’ve taken steps to strengthen their financial and credit profiles. With traditional forms of financing becoming increasingly difficult to secure, small businesses can benefit considerably from exploring alternative funding solutions.
One increasingly popular option is a merchant capital advance or MCA -a reliable choice for businesses that process a heavy supply of credit card transactions. A merchant capital advance is a form of financing that lets you take an advance against future credit card sales.
This financing type is the preferred choice for many small businesses because it is easier to obtain than traditional financing, and the terms are flexible. Merchant capital advances are based on your current and future credit card sales. If you can evidence a history of profitable credit card transactions, you won’t necessarily need perfect credit to qualify for an MCA.
Business owners looking to take advantage of a merchant capital advance should keep a few important points in mind. For starters, the MCA is always structured as a percentage of the company’s future credit card sales, so the amount of financing available depends on the amount of credit card transactions the business processes.
Merchant capital advances can be an effective option for small businesses heavy in credit card transactions. It is easier to obtain an MCA than traditional financing. MCAs are more flexible than conventional loans, making the solution an attractive option for businesses seeking alternative financing.
With that mentioned, business owners should always understand the terms of the agreement before signing any contracts and be aware of the prospectively higher interest rates associated with this type of financing.
Ensure you can repay any borrowed funds
The ability to repay borrowed funds is a crucial factor in the success of any company. Whether you are a startup or a long-standing business, ensure you can repay any loans you sign. This is especially true if you’re using borrowing as a last resort attempt to keep your business afloat.
Alternative lending solutions help companies borrow funds quickly, but a struggling operation incurring more debt is hardly without its risks. The capital injection can, however, provide businesses with the necessary funds to help keep them afloat after a shortfall.
Alternative lending consultants can also offer guidance on choosing repayment options and interpreting loan terms. Their advice will help businesses get the funds they need without getting into a situation in which they’re unable to repay the loan.
Knowing that you can repay borrowed business funds before taking out a loan protects your business. Alternative finance specialists can give companies like yours the necessary capital it needs while, at the same time, providing expert consultation on selecting the most profitable loan products.
When should you consider unsecured bad credit business loans?
The initial step in deciding whether or not to take out an unsecured business loan for bad credit is to assess your current financial situation. Evaluate your current cash flows and expenses to determine if a loan is even necessary. Consider if the loan will provide enough fiscal enhancement to make a difference, and ask yourself if the borrowing costs are within reason.
Before taking out an unsecured business loan for bad credit, remember to research the lenders and compare their terms and rates. The loan should be affordable, and the creditor must be reputable with an established track record. The right decision ultimately depends on the unique financial situation and goals.
Apply for competitive low-credit funding today
Business owners should consider low-credit funding to help them break through financial hurdles. Low-credit funding can be a much-needed lifeline for businesses with bad credit and can provide the capital needed to get their business up and running again.
Are you a business owner and believe alternative low-credit funding is the right option for your company? If so, dial 844-228-0593 now to connect with a senior business lending specialist and learn more about our alternative small business lending solutions.
What Are Working Capital Loans, and Why Do Businesses Need This Type of Funding?
When small to medium-sized businesses lack the working capital to finance their daily operations, they invariably start looking into external funding options, either from a bank or non-bank lender. Companies that find themselves in an abrupt and unexpected shortfall need expedient access to financing in order to keep up with their lease payments, debt obligations, and employee payroll.
This type of financing is called a working capital loan. Put simply, working capital loans represent a type of financing that businesses use to cover their day-to-day operations when they encounter an expected or unexpected shortfall. These loan products can be either secured or unsecured while their term lengths vary. With some exceptions, working capital loans typically entail a shorter repayment period.
To manage day-to-day expenses like payroll, rent, and utilities.
Seasonal businesses needing to cover costs during off-season.
Inventory Purchase
To buy inventory in bulk, often at a discounted rate.
Retail stores stocking up before the holiday season.
Debt Servicing
To meet short-term debt obligations.
Businesses facing a temporary cash flow issue.
Equipment Purchase
To buy or repair essential equipment.
A restaurant needing a new oven.
Expansion and Growth
To fund business expansion such as opening a new location.
A successful café opening a second branch.
Emergency Expenses
To cover unexpected costs like repairs or legal fees.
A shop needing to repair a broken storefront window.
Marketing and Advertising
To invest in marketing campaigns to attract new customers.
Launching a new product line and needing promotional activities.
Cash Flow Gaps
To bridge the gap between accounts payable and receivable.
A B2B service provider waiting for invoice payments.
Employee Training
To invest in employee development and training programs.
A tech company needing to train staff on new software.
What are the different types of working capital loans?
Working capital loans have become increasingly popular among the small business community. These business lending products provide an effective means of financing companies that need the additional funding to continue operating, capitalizing on time-sensitive opportunities, and driving their long-term strategic growth initiatives.
As you start the search for new funding opportunities, here are the different business loan types you’re most likely to encounter:
Short-term financing
As mentioned, short-term financing products are among the most common types of working capital loans that businesses use to cover their essential operating costs in the event of a financial shortfall or if they have to make a considerable investment but lack the liquidated assets to do so within the necessary timeframe.
Short-term working capital loans typically include a fixed payment period and interest rate. Depending on your application, asset holdings, credit profile, and relationship with the lender, loans of this type may be secured or unsecured. Some short-term working capital loans may require businesses to collateral assets to secure the note, while other products, assuming the borrower is qualified, may waive this condition.
Business lines of credit or bank overdraft facility
Once the bank establishes the borrowing limit on the line of credit, it functions like a revolving consumer trade line. Borrowers can use the funds as needed before paying the balance back down to reaccess the available credit and cover their expenses.
Not unlike consumer credit cards, business lines of credit only allow you to use funds up to the approved cash limit without facing penalties. Likewise, borrowers are charged interest on only the amount withdrawn. This differs, of course, from a term loan that is dispersed in one lump sum, and the borrower is required to pay interest on those funds over a fixed time period.
The biggest upside to a business line of credit is that borrowers can deposit the used amount to reduce borrower costs and save on interest.
Trade credit
Trade credit is an agreement between current or prospective suppliers that provide the working capital. Typically, suppliers will use the trade capital loans to incentivize large, bulk orders of their inventory.
Similar to any financial institution, the supplier will analyze the business creditworthiness, payment history, and documented cash flow before entering into a repayment contract and extending trade credit to an enterprise.
Accounts receivables
This type of working capital funding uses your confirmed sales orders as a means of qualifying the loan. Accounts receivable financing is best suited for companies that, for whatever reason, cannot fulfill an upcoming sales order but can show they have the accounts receivables to cover the purchase.
Before attaining accounts receivables of funding, businesses need to exhibit a strong credit profile, a history of timely payments, and a favorable credit rating.
Equity funding
Equity funding is a common source of business financing that relies on investment funding secured from private or personal sources. Business owners who already have lines of credit on their personal property or high-limit consumer trade lines may use these funds to invest in their businesses.
This would constitute a form of equity funding, one of the most practical types of working capital loans for recent startups or newer companies that need more seasoning before they can apply for business financing.
Factoring invoices
Factoring invoices represents a financing arrangement in which a business will sell a portion or all of its accounts payables to a third party at a value that is lower than the original value of the accounts.
These third parties are known as factor services. They issue working capital loans to companies by purchasing the accounts payable invoices and collecting these amounts from debtors at their original values.
Letter of credit
Letters of credit or credit letters are official statements from a bank affirming that a buyer’s payment will be received in full by the due date. If the buyer cannot cover the purchase payment, the financial institution that issued the letter must pay the full or remaining balance of the original purchase amount.
Buyers purchase letters of credit from banks and send these letters to the seller. Once the order is paid as agreed by the sender, the financier remits to the seller the complete balance due. The bank will then collect this amount from the buyer at the date established within the agreement.
Bank guarantee
Bank guarantees are granted by lenders on behalf of the finance application to cover their payment obligations to third parties. This type of working capital loan does not involve the transfer of funds to the business.
Instead, buyers or sellers attain a bank guarantee to offset potential risks associated with non-performance on a contract. The bank serves as a grantor who answers to the party requesting the guarantee in the event that the buyer cannot cover the third-party payment obligations.
What are working capital loans used for?
Working capital loans issued by banks, non-banks, and alternative lenders are typically short-term financing that helps companies cover their existing and ongoing capital expenditures, such as employee wages, commercial real estate lease payments, and debt servicing.
Working capital loans are similarly effective at helping business finance expansion products or take advantage of limited-time discounts on vital assets such as manufacturing equipment. This type of debt financing specifically targets the short-term needs of companies that, for whatever reason, lack the capital expenditures to pay for them.
Working capital loans benefit businesses in several ways. Working capital business financing allows companies to maintain their agility, enabling them to respond to unanticipated crises and respond to unforeseen opportunities by securing additional funding.
Short-term working capital loans help businesses subject to cyclical or seasonal operating models cover their expenses during slower times when revenue is low. The extra funding gives companies like these need additional cash on hand to supplement temporary revenue shortfalls.
In other scenarios, enterprises may access working capital loans to enhance their strategic positioning. For instance, if a business sees an abrupt and unexpected spike in demand, the company may lack the funding to increase its current production. In this case, the organization would seek funding to hire more operators, purchase additional inventory, and procure the equipment and real estate needed to cover the increased customer demand.
Working capital loans are also useful for helping businesses take advantage of limited-time supplier discounts that if not acted upon quickly may prove detrimental to the health of the business and future profits.
At the same time, companies don’t typically use working capital loans to finance long-term assets. Organizations that support long-term tactical projects are likely to find better financing terms for these kinds of investments.
Sourcing working capital financing for your business
For newer businesses and recent upstarts, finding a reliable source of business financing is no easy task. In these early stages, most business owners are forced to rely on their own resources.
However, once smaller companies hit a critical breaking point in their growth, they eventually need to start looking for ways to finance additional working capital and seek a capital line of credit.
That’s not to say that business owners can’t -or don’t- start their companies with traditional business loans, but this is definitely not the role of a working capital loan.
There are plenty of private and government resources available that help launch new upstarts, however, working capital financing is generally reserved for businesses that have been operating for some time.
On the whole, securing financing for an unseasoned business is usually more challenging for new companies than it is for businesses that have been operating for more than six months.
Loans for newer companies are certainly not impossible, however. Usually, before you can take out a loan to start a new business, you’ll need to demonstrate an impenetrable business plan and prime credit before a lender agrees to fund it.
The other downside to using a working capital loan to finance longer-term initiatives is that the interest rates are often higher than loans with longer repayment periods and the other types of private equity funding discussed above.
This is true of any upstart that lacks a reliable track record of cash flows. In this case, whatever financing you receive would be considered high-risk. Presuming the borrower has no prior business experience, the qualification process will be tied exclusively to personal credit history.
Finding a reliable business financing source at the outset can be a challenge, which is why most entrepreneurs start their enterprises by bootstrapping. As your company gets more established and gains more seasoning, however, you’ll find a multitude of business loan options to help meet your requirements.
Why do small businesses need lender-financed funding?
Under ideal conditions, small businesses shouldn’t have to seek outside funding to keep their operations running smoothly. However, to remain competitive, most growing companies will eventually have to seek a capital line of credit or some other form of lender-financed, short-term working capital after bypassing a critical growth threshold.
With operating costs higher than they’ve ever been, most small businesses don’t have enough reserve capital on hand to procure new real estate, transport vehicles, equipment, software technology, and other company devices necessary to keep pace with their industry counterparts.
In fact, the current business environment is so characteristically unpredictable that many organizations learn they need quick access to additional working capital to address unexpected revenue shortfalls or make urgent repairs on aging equipment. Without the additional funds, the business could be placed at risk of significantly disrupted operations that eventually lead to closure.
While finding the right financing for your business is rarely easy, especially since traditional credit conditions are tightening, there are plenty of alternative options available.
New Bridge Merchant Capital offers speedy funding after a comparatively streamlined approval process, especially when considered in light the hoops you have to jump through at a traditional bank.
Coming prepared with a positive credit rating and a strong business plan vastly improves your chances of finding favorable loan terms and almost always hastens the loan qualification process. No matter who you borrow from, the lender must understand the objectives behind the proposed loan and be reasonably convinced the additional funds will ultimately lead to a profitable outcome.
With this in mind, the last thing any lender wants is to issue a loan that worsens the business’s current standing. The financing party is, therefore, always committed to the success of your business, as this constitutes the most effective approach for mitigating its own risks.
Now, let’s look at a few more scenarios in which a small business may need access to working capital before diving into the specific details of how business loan products from New Bridge Merchant Capital can benefit smaller upstarts like yours.
Asset acquisition and strategic growth
While we’ve touched on this topic a bit already, it’s worth revisiting again. Any company that aims to grow must necessarily acquire new assets. The problem is, many small businesses simply don’t have the funding on hand to procure them and take this next step to advance their growth trajectory.
Upgrading Modern IT equipment and infrastructure accounts for two major expenses that even large, enterprise-level businesses can’t afford. Yet, without the latest technology, the company could expose itself and its customers to potential cyberattacks that may lead to a costly information breach. At the same time, failing to modernize its technology means the organization is unlikely to perform at the same levels as its industry competitors.
While IT isn’t necessarily a revenue-generating function, the return on investment (ROI) from a security and productivity standpoint is high. Having access to the latest computing devices and software could allow you to you double your output while decreasing your risk.
Whenever you invest in new company assets, remember to always conduct an ROI analysis to ensure the benefits of the loan outweigh the risks.
Servicing your existing debt
While long-term loans might be more effective for consolidating and paying off high-interest debt into a single payment, you can leverage short-term working capital to service your current debt obligations after discovering a revenue shortfall. The latter approach ensures that when businesses encounter times of lower revenue, they can survive long enough to see your historically profitable months.
If you decide to use a business loan or short-term working capital funding to pay off debt, make sure you’re doing the appropriate calculations to confirm that you are actually lowering your borrowing costs and not increasing your financial risk. This includes a careful analysis of all the closing fees, prepayment penalties, and additional costs with closing the new loan.
Preserve your business credit standing
Upon starting your business, you have no doubt discovered a multitude of factors that can negatively impact your business -many of which fall outside the typical small business owner’s control.
In addition to fulfilling your operational requirements, a working capital loan can help you preserve both your credit rating and reputation by giving you enough cash on hand to make timely payments. Not only does working capital help ensure smooth and continuous operations, but it is also a reliable way of preserving -if not boosting- your current business credit profile.
Every business has a credit score, and falling behind on payments with third-party vendors and suppliers is almost always detrimental. In fact, slow pays and credit delinquencies are two of the fastest ways a company can find itself in a hole that it may not be able to dig itself out of.
Once your credit rating falls, and the invoices start to mount up, you’ll likely find yourself with few lending options that could provide much relief by helping you cover the cash gap.
Improved cash management
Working capital loans help small business enhance their overall cash management to give business owners more control over advancing operational growth and profitability. If you want to improve your asset and cash flow balance chart while gaining peace of mind knowing you can weather a shortfall, working capital loans represent an effective means of achieving this.
Need access to fast and effective working capital lending solutions?
New Bridge Merchant Capital offers a diverse range of small business funding and working capital loans to recent upstarts like yours. We pride ourselves in streamlining the approval process and our repayment terms are equally straightforward.
Start exploring your business financing options now by connecting with New Bridge Merchant Capital online. Or, to discuss your unique requirements, reach out to one of our senior business financing specialists by dialing 844-228-0593 now.
Here’s What You Need to Know About Expansion Financing
If you’re a new business owner unfamiliar with your options for expansion financing, it’s a smart idea to get acquainted with them now. Proactively educating yourself on this subject will help you avoid scrambling and trying to figure out how expansion financing benefits you in the future when you need it.
Launching an upstart requires as much capital as it does tact and dedication. And while starting a business is one thing, profitably maintaining it over the long term is an even trickier task. It’s no secret that roughly half of all small business shutter within five years, and to offset this risk, business owners must get a handle on their growth strategies sooner rather than later.
The good news is that 50 percent of the businesses that haven’t failed fail are succeeding. The reason why these companies continue to thrive is that they understand how to leverage business financing to drive their long-term strategic growth initiatives.
Running a modern small business demands more than tight budgeting and an effective marketing strategy. These fundamental elements are undeniably important, but they are hardly useful if your organization hasn’t tactically positioned itself to grow alongside market demands.
Why should you be thinking about expansion now?
If, for example, you operate a physical warehouse site, eventually, you’ll need more space. Businesses in the healthcare and manufacturing sectors always need new equipment and the latest software tools.
Growth is hardly a bonus feature of doing business. It’s a necessity. For those organizations that haven’t sufficiently prepared themselves to expand their operations, workforce, and existing customer base, the odds of these companies developing a sustainable long-term platform are low.
The sooner you start thinking about expansion financing the better. With the rising costs of labor, materials, and real estate, the longer you put off your strategic growth initiative, the more it will cost you to successfully execute it.
Organizational growth is known for boosting company morale while assuring your staff that you haven’t checked out of the company and that your organization remains on profitable trajectory. Stagnancy in business is never a good sign and is usually a reliable indicator of bleak times ahead.
Of course, expanding your operations is never cheap. Most businesses need access to outside financing. The trouble with this is that most conventional lenders have been reticent to lend to smaller companies since the 2008 financial crisis.
By many indications, the global economy may be headed for a similar downturn, which means you can expect the credit market to tighten even further. That’s why it’s advisable to get started on your expansion plans now as opposed to waiting.
Expansion financing and alternative lenders
Fortunately, alternative business lenders like New Bridge Merchant Capital have started filling in the business financing void that was once occupied by traditional lending institutions before 2008.
Alternative lenders are far more likely to approve business expansion loans in the current economic climate. These lenders can get you the funds you need at a pace much faster than if you had a pursued more conventional financing path.
What is expansion financing, and how does it work?
Put simply, expansion financing capital helps growing upstarts increase their balance sheets and add the valuable company assets required to keep their operations on a positive growth path.
Business expansion can entail any number of objectives. Most commonly, expansion involves the introduction of new assets that bolster areas such as research and development, marketing, and operational productivity.
Expansion refers to any activity that leads to securing a larger customer base, including substantial transactions that involve mergers and acquisitions. So, how do businesses finance their expansion plans? There are several ways to go about it, from crowdsourcing to private equity loans, but the most common methods are equity and debt financing.
What is equity financing? This method of funding requires businesses to issue stock shares in exchange for the infusion of extra capital. The primary downside to equity financing is that it often involves business owners relinquishing some aspects of control over their operations. In exchange for this, the company owner is released from any obligations to repay the debt.
Debt financing, on the other hand, applies more traditional lending concepts in which funds are dispersed by a bank or non-bank with the expectation that the borrower repays the balance over a fixed term with interest. Under this model, business owners aren’t required to give up management control over their companies, but they may need to offer up business collateral to secure the proposed expansion loan.
Regardless of which path you take, it’s important to be confident that the expansion will lead to profits before financing the project. You should also make sure that your business is on firm ground pursuing any expensive growth strategy.
Lastly, conducting sufficient research into your financing options is crucial. You always want to find the best loan for your business and confirm that you’re not missing out on better financing opportunities.
Choosing an expansion finance lender
The first thing to look for in an alternative financing offer is lender transparency. If you’re working with a creditor that is upfront about all its fees and repayment terms from the outset, this is a pretty good indicator that you’re dealing with an honest financier that is well-vested in you having a positive borrower experience.
While business loans for expansion are often hard to come by, this is hardly a good reason to not hold the prospective lender to high service standards. Excellent communication, attention to detail, and a supportive attitude are all qualities you should be seeking in a business banking partner.
Getting started with your next business expansion loan
Understanding how to finance business expansion isn’t overly complicated, as long as you understand the basics and don’t put your growth plans off until it’s too late. The last problem you want to encounter is a spike in customer demand that you’re unprepared to meet.
Expansion can be an expensive and complicated undertaking. Working with the right alternative lender can make all the difference in guaranteeing a successful outcome.
New Bridge Merchant Capital’s senior business finance professionals have decades of experience helping small businesses like yours execute their strategic growth initiatives.
For more on how our business lending experts can help you expand your company’s footprint and boost your annual revenues, apply now on the New Bridge Merchant Capital website or call us at 844-228-0593.
In today’s highly competitive business milieu, a loan denial can carry significant consequences for any organization that needs speedy access to additional working capital. Many small business owners are just now discovering they must expand to survive, and that they need access to reliable alternative lending solutions to avoid shuttering in the near term.
While a business loan application denial invariably presents business owners with a set of new challenges, these obstacles aren’t always insurmountable. The first step after a denied loan approval is to understand why your application was rejected.
The rejection letter will tell you how to start repairing your credit profile. You don’t want to risk running multiple hard credit inquiries the next time you apply. If your approach here is faulty, you could worsen your score to only find out you’re still unqualified for the desired loan.
Applying for business financing differs considerably from the process a standard wage earner endures after applying for a conventional bank loan, so it’s important to prepare accordingly.
If you’ve been running your company for a significant time, surely you’ve seen your ups and downs, and you know that your projected revenues are just that -predicted income and unassured.
Given that banks are in a position of taking substantial risk granting business loans, it’s not uncommon to find your loan application denied because you don’t meet all the necessary criteria for approval. When this happens, it can be disheartening, to say the least, and it might impact your existing growth strategy.
Fortunately, there are a few reliable steps you can take, which we’ll discuss below, that can improve your personal and business credit profiles so that you find better results in your next loan application.
If you’re wondering what to do if the bank turns down your loan, here’s a bit of advice on what steps you should take after your business loan is denied:
Start by understanding the underlying issues with your application
We’ve touched on this briefly in the introduction, but the first step after a business loan application denial is always to understand why the bank issued it in the first place.
When a loan application gets rejected, a competent lending consultant will likely advise you verbally on why your loan was kicked out of approval status. This notification is usually accompanied by a formal bank letter that reiterates these specific details.
You might discover that your debt-to-income ratio is too high, you don’t have enough seasoning on your business, or the proposed collateral assets values are too low. If you lack previous experience as a business borrower, some of the reasoning you’ll find in the denial may require further explanation. But, generally speaking, these details are usually straightforward enough for the typical business owner to understand.
One of the advantages of working with New Bridge Merchant Capital is that we do everything within our means to ensure that you’re qualified for the loan products you are interested in before formally submitting an application to underwriting. If it appears to our team that you’re not quite ready, we’ll work with you to establish an action plan that gets you back on track to receive a full approval.
The reasons a business loan was denied are often as numerous as they are diverse. However, our team of small business finance specialists can help you understand how to successfully prepare for getting your next loan application approved.
Start taking action to address the faults in your rejected application
Once you’ve discovered the bank denied your business loan application, proactively addressing the reasons for the denial you can control is crucial. Starting this process sooner rather than later is the key.
It’s worth pointing out that your loan could’ve been denied for reasons outside of your control, such as declining economic conditions or your wider industry recently destabilized. In these instances, there is little else to do but wait until circumstances improve, or you can pursue alternative lending solutions.
With that mentioned, concerning the faults within your application, there are a few that might simply fall outside of your control. If business seasoning is an issue, this would be a matter of waiting out the necessary time interval. Or, if documented cash flow is the problem, you can always adjust your invoice procedures so that you’re getting the funds owed faster and it’s easier for a third party to understand how much your business earns.
In most circumstances, your denial comes down to a less-than-favorable credit profile. If your application was rejected for a low credit score, the best practice is to start working on improving your personal and business credit scores now.
There are several ways to go about this process, many of which we’ve touched upon in previous articles. Without going into too much detail here, one of the most effective approaches for improving your credit score fast is by paying down your existing debt.
Ensure you’ve applied for the right loan product
If your business loan application was denied for factors outside of your personal control, company seasoning, for example, there’s a chance you could have applied for the wrong loan product.
In situations like these, communication with the financing institution is critical. After discussing your situation in-depth, you might discover that you qualify for lending products more suitable to businesses like yours.
Traditional small business lending and alternative specialized financing approval guidelines can differ considerably. Work with your lending professional at the bank to determine if there are any alternate paths to pursue after a denial.
Start a new loan application
Once you’ve addressed all the red flags in your bank rejection letter and increase your chances of approval, you’ll be ready to reapply for business credit.
Start by gathering all the relevant documents, assembling them neatly and coherently, in a way that doesn’t invite doubts or additional questions from the bank’s underwriting department. Work closely with your lending officer to ensure you have everything in order before formally submitting the loan application.
Finally, make sure that your plans for using funds from the business loan are intelligible and that the loan will add value to your business, enhancing its future profitability. You’ll also need to demonstrate a sufficient capacity to repay the proposed loan amount under the established payment terms.
Presenting an effective business plan and marketing strategy goes a long way in assuring the bank that you have all your bases covered and can repay the loan.
Need to speak with a business credit professional after a denial?
The team of business finance experts at New Bridge Merchant Capital has helped dozens of companies like yours improve their personal and business credit profiles so they can get back and track to accessing low-cost borrowing again.
We’re happy to discuss the details of your recently denied loan application and provide further insight on getting yourself approved in the next go-round.
If you’re struggling to secure business financing, connect with a lending specialist at New Bridge Merchant Capital online today or call our dedicated customer line now at 844-228-0593.
