During the recession in 2007-2008, all credit unions and banks changed their lending standards significantly. They did this in order to save money instead of giving the money to substandard businesses. This made obtaining loans from a bank quite a difficult task for small business entrepreneurs.
However, in order to fill in the void left by banks stepping back, alternative lenders rose to the surface. These alternative lenders helped provide working capital to smaller businesses that do not need granted loans from a bank.
In order to successfully get funding from these alternative lenders, here are the top four factors to keep in mind.
1. Credit Score
If you are a small business owner, it is essential for you to have the highest credit score as possible. A business owner having a 20 percent or more interest in the company must have a good personal credit score in order to get loans for their small business. However, alternative lenders loan money to business owners having a credit score of 500 or lower. Better rates are there for business owners having a credit score higher than 750.
Small business owners having a high credit score are able to get loans directly from the bank, but they still chose to get loans from alternative lenders. They opt for alternative lenders because the funding process is much easier and faster as compared to conventional bank channels of funding.
Before the availability of alternative lenders, small business owners having bad credit receiving a loan from banks was close to impossible. Fortunately, it has become much easier to get a loan as compared to before. You can now seek the help of platforms like Orumfy, one that can help you to search for a suitable loan to meet your business needs.
2. Operational Duration of Business
In the case, that a business has been in operation for a duration shorter than two years, this falls under the category as a start-up. Start-up businesses are normally ineligible to be receive grant for a conventional bank loan. In order to qualify a loan, one of the bank’s main requirements is for the business to be operational for more than just two years.
Alternative lenders are able to provide funds regardless of the operational duration of the business. Loans are available to businesses that have only been operational for a couple of months by alternative lenders. The amount of money loaned to the business by the alternative lenders is one that is because of how much revenue the business brings in per month.
The longer the duration a business has been operational the higher the chance of receiving a loan. Fortunately, for businesses that have been in the works for more than two years are at an advantage, as they will be granted loans more readily and may receive more money. In order to obtain loans based on more structured terms, it is required of a business to have crossed the two-year line.
3. Monthly Revenue
Owners of Small businesses that have been running for two years or less need to be creating a revenue of more than $5,000 in order to be eligible for receiving funding. An arbitrary amount of revenue generation does not guarantee that the business will receive the funding.
An important determinant in obtaining funding is the amount of daily balance in your business’s bank account. This average balance will play a huge role in determining how much funding you will be receiving, regardless of the lender. Not only does it determine the total funding you will receive, but it also determines the time span of when the business would receive funding and how the funding will divide over that time duration.
There are a large number of assets that may serve as collateral, helping in securing a loan from alternative lenders or banks. The amount and type of collateral largely depend on the type of business you are taking the loan for.
By keeping the collateral, a sense of accountability is present in the borrower of paying back the money to the lender. In addition to this, it can help relax the lender that in the case that the business is liquidated, they are entitled to some money back that they’ve invested or loaned. This removes some hesitation a loaner would feel while funding a business.
Keeping deposits as collateral is a viable option for both hardened business and start-ups. All money deposited in your business bank account.
If you use equipment as collateral, this means that in the case that you are unable to pay back the loans; you are under obligation to sell the equipment to the respective equipment leasing companies. Those companies will in turn hand you a sum of money depending on the usefulness of the machines, or the equipment condition. The company then officially owns the equipment but the equipment then leases back to the business and when the leasing period is over, the company takes the equipment.