Many small business owners find it difficult to get financing for business, and there is nothing special about it. Getting a business loan for small businesses such as shops, restaurants, auto shops, etc. is not as easy as you might think from a bank.
However, this does not mean that it is impossible to get a business loan. It all depends on where people are looking for a loan. As a rule, business owners have two main options: to apply to local banks and to a financier or private lender.
Loans to banks and small businesses
Banks look at small business loan applications from their point of view, and their point of view is determined by their criteria. When we talk about criteria, there are many criteria, and they are all rigid and rigorous.
Banks usually require high credit ratings, which should be around 700 or higher. If a business applying for a loan from a bank does not have an excellent loan, its application will be rejected only on the basis of this criterion. In conclusion about banks and credit ratings: financing businesses with bad credit history in the bank is not an option.
This does not mean that there are no other criteria that banks follow as seriously and closely monitor. The criteria for banks have been established for decades on the basis of shared experience, and these criteria are universal.
As is widely known, banks are not too interested in financing loans to small businesses. There are many reasons for this, and one of the main reasons is that small business is considered a high-risk investment in terms and experience of banks.
Private lenders and small business loans
The situation with a private lender is completely different than with an entrepreneur in a bank. Private lenders have a very different list of criteria for providing liquidity to business owners.
Since private lenders mainly offer MCA (Merchant Cash Advances), the criteria for this are simple. The MCA loan is an unsecured loan and does not require high credit ratings. This makes it easy to qualify for such funding.
However, many small business owners do not look at MCM from a friendly point of view, and they also have their reasons. Interest rates are higher than traditional bank loans, and most entrepreneurs want low interest rates.
However, MCM’s interests are not to compete with bank financing, as they are both in very different areas. In addition to the fact that it is corporate finance, the whole process, requirements, functions and all other details related to finance, completely different.
In the case of an MCA loan, the question of how to get a loan for small businesses does not really arise. Only in very rare cases do private lenders refuse small businesses. As a rule, most enterprises receive the funding they need for their activities.
MCA V/S Bank Loans
Trading advances, or abbreviated MCAs, are usually accompanied by high interest rates. Much more than the bank offers, and the reason is that these are short-term unsecured loans.
There are many businesses that will never be able to qualify for a traditional bank loan, no matter how strong and needed. If their credit rating is low or they are unable to provide collateral, banks will require their claims to be rejected. This does not mean that there are not many other reasons why banks do not reject small business loan applications. Banks are also not obliged to provide financing to those who do not want to. As a result, many small businesses have no choice.