That is a question often asked by small business owners over the past few years. As small business financing options dried up during the financial crunch and recovery. Not only have commercial banks tightened their small business lending guidelines, but small business owners have seen their business credit impacted — reducing their ability to get a traditional bank business term loan or line-of-credit.
Commercial banks are only lending to small business owners who have managed their credit very well — and even then the commercial banks would prefer to fund small business loans tied to a government enhancement (like SBA business loans) to reduce their risk. Where do you go to get the financing you need to grow your business?
Where to Get a Business Loan With Bad Credit?
Nearly 63% of business owners attempting to find funding say they most often targeted banks. Where are the other 37% going? Alternative lenders have stepped into the small business financing space. One type, known as Merchant Cash Advance financing (or Business Cash Advance) has filled the online business loan space and helped many small businesses get the short-term funding they need until they build their business credit.
A quick Google search for short-term online business loans like “Merchant Cash Advance” or “Bad Credit Business Loans” will come back with dozens of hits. The key is finding the right business loan advance for your business (as the rates and terms of these types of loans vary).
Merchant Cash Advance Rates?
The terms of merchant cash advances are usually between 3-18 months. The payback is usually daily, but only on business days (weekends and holidays don’t count). There are some business advance lenders that allow small businesses to payback weekly if they meet the lenders’ cash flow criteria.
These types of business cash advances rates are called “factor rates” that are usually in the 1.16 – 1.49 range.
What is a Factor Rate?
These types of business cash advances rates are called “factor rates” that are usually in the 1.16 – 1.49 range. A factor rate represents the ratio of the total business loan payback as compared to the amount of the loan advance funded to the small business.
For example, if a small business owner took out a merchant cash advance loan for $10,000 at a factor rate of 1.25, the small business would payback $12,500 over the course of the term.
Are Cash Advances Worth It?
It depends upon the small business’ financing needs. If the business owner sees an opportunity to finance a business need where their returns will be larger than the loan amount agreed upon between the business owner and the business lender, and the business owner understand that their bad credit will prevent them from getting a traditional bank loan, then a merchant cash advance may be well worth it to the business owner.
How Fast is the Process?
Initial online business loan approvals can take minutes, although funding for the business usually takes 24 hours – 7 days (depending on the size of the business loan amount and the amount of risk the business lender is taking).
Bad Credit Hurt Chances?
Bad credit usually isn’t an issue with a business advance loan because the lenders reduce their risk by using a daily payback directly from your small business bank account. The commercial lenders also price in the risk associated with the bad credit (leading to higher rates than traditional bank business loans).