Its hard to get bank loans for business

Banks have an extremely low approval rating for small business loans, largely because borrowers must possess a perfect credit score and have a lot of money in their bank accounts.

A perfect credit score requires a significant credit history featuring no missed payments, no maxed out credit cards or credit lines, and a low credit utilization rating.

30% of your credit score is made up by your credit utilization rate, or the percentage of your available credit that is being used.If you have a credit limit of $100 and a statement balance of $20, your utilization rate is 20%, a good number. But if your credit limit is $3,000 and you borrow over $2,000 during a particularly chaotic month, you will drive up your utilization rate and shrink your credit score well below 600.

A company’s cash flow determines its ability to make monthly payments while covering regular expenses like rent and payroll. Many businesses, however, tend to pay vendors and suppliers before getting they get paid themselves, giving the impression that more money is coming out than coming in.

Another reason banks reject so many small business loan applicants is a lack of collateral, or something the bank can sell in case the loan is not paid back. New businesses typically do not have any equipment or real estate to offer or might not want to risk losing their personal homes and cars.

The only thing more frustrating than these qualifications it the approval process for a bank loan.

There’s a ton of paperwork involved, and you have to wait several months to find out whether or not you’ve been approved.

Odds are, your business has a much higher chance of being approved by an alternative business lender like the company I founded, United Capital Source.

Collateral is not required, and applicants are not judged mainly by credit score, because poor credit is not an indicator of poor cash flow. Your business must simply have had steady revenue over the past three months in order to be considered for one our many programs. We have issued small business loans to businesses in hundreds of different industries, including businesses that were bound to experience inconsistencies in revenue due to their own unique circumstances

After filling out our one-page application, you only need to prepare a few documentsincluding bank statements, business tax returns, and a profit and loss statement. Approval can be granted in less than 24 hours and funding could reach your bank account in a matter of business days. If you pay off the first business loan without hiccups, you’ll be able to obtain a second, larger funding amount with better rates and terms from UCS much quicker than the first time.

4 Myths you need to be weary of:

1. You Can’t Get a Loan if You’re Denied by a Traditional Bank

There was a point in time when your traditional brick and mortar banks were the only financing option available to businesses. So, it was true—unless you had a rich uncle who was willing to invest in your business—that a denied loan application meant you were out of options. But this is no longer the case.

After the financial crisis in 2008, big banks tightened up their lending standards, making it nearly impossible for small business owners to get the financing they needed. Luckily, that financial void was quickly filled with a new group of alternative lenders, who now give small business owners more financing options than ever before.

2. You Have to Have a Perfect Credit Score

This is still partially true—if you’re applying for a traditional bank loan, your personal credit score will be weighted pretty heavily during their underwriting process. However, since the banks are no longer a small business owner’s only option, a less-than-perfect credit score won’t completely ruin your chances of getting the financing you need.

To give you an idea, most online lenders will want to see a credit score of 550 or above. This includes short-term lenders and others offering more expensive products. If you’d like to explore longer-term, lower-cost debt online, you’ll need to have a score of at least 620. And of course, the higher your score the better. If you’re at a 700+, you’ll have an even better chance with products like an SBA loan or the bank, which are the most affordable products on the market.

3. You Won’t Be Able to Get a Small Loan

The underwriting costs are the same to the lender, regardless of the loan amount. So because smaller loans mean less of a return, banks don’t consider the costs to be worth it and, typically, aren’t interested in smaller loan amounts.

But thanks to the Small Business Administration, getting a loan is no longer a problem for business owners who have low capital requirements and don’t need a lot of money. With their Microloan program in particular, the SBA offers loans for as little as $500 to $50,000. Interest on these loans range from 8 to 13%.

Outside of the SBA’s Microloan program, many, if not most, online lenders are willing to make loans with smaller amounts. For example, on the Fundera marketplace, the average loan size is $52,000, and that’s across all types of lenders and loan products.

If you need a small amount of working capital to pursue a business opportunity, you have more options than ever.

4. It Takes a Long Time to Get a Small Business Loan

If you’re seeking a loan through your local bank then, yes, you will have hefty amounts of paperwork to fill out, and you could wait for months before you receive funding. But getting the financing you need for your business does not have to be a long, drawn out process.

If you need money quickly, you can find an alternative lender online, fill out a loan application within minutes, and receive funding in as little as two days. Often times you pay for the convenience with higher fees, but if you’re looking to grow your business quickly, or need money in a pinch, waiting for funding is the last thing you’ll want to do.

How quickly you can get a loan depends on the type of loan you’re evaluating. Fast cash is expensive cash, so for a shorter-term product, you can move quicker than with a longer-term product. If you need money fast, but want to see if you can qualify for a lower-cost, longer-term product, make sure you’re coming to the table with your financials completely prepared.

Although some of these myths about small businessloans were once true, alternative lenders have changed the lending game for small business owners as a whole. Now it’s much easier for entrepreneurs to get the funding they need in faster times than ever before.

Want To Know About Business Finance

Start Your Own Business particularly for startups and small to medium businesses. It would be great if you could provide some worthwhile answers to these:

1. What are the options for raising finance for a new business?
2. What are the pros and cons when choosing between different funding options for a new business?
3. What the best way to raise finance for a new business for each of the funding options available?
4. What is crowdfunding and how can you best access these funds?
5. How do I calculate the amount of capital I need to start a business?
6. How do you work out gross profit for a service based business?
7. How do I work out the breakeven for my business?
8. What is the best way to manage debtors/creditors to maintain good cashflow outcomes?
9. What is the best way to monitor my cashflow?
10. What is the best way to develop a profit forecast for my business?
11. How do I calculate the selling price or value of a business?
12. How do you compare the financial performance of a small business with the averages?
13. What are some important tax implications to consider in business finance?
14. What type of financial adviser is best for a small business and how should I engage them?

Advantages And Disadvantages Of Small Business Loan

Small business loans can get a business started. Whenever you have a dream, but not the financing to get it off the ground, this is one of your best options. These loans will support you financially as you find property, get together the stock, build up your business plan, hire employees, and start making a name for yourself. Getting these loans is not difficult, either. Plenty of sources offer small business loans to individuals who want to build their small business but do not have the money to do so on their own. There are advantages and disadvantages to doing this.

 

 

 

Advantages 

A small business loan is money. Every business needs money. This is the most basic of advantages for a business owner. When you are short on cash to open a business, like most people hoping to open one, you can go to a bank or other small business loan lender for assistance. They will give you a reasonable amount of money, sometimes the exact amount that you need.

The bank does not become an owner and does not play a role in the business. Unlike other types of financing, you will not have to worry about the bank doing anything. As long as you pay back the loan on time, the bank stays out of your business. You are free to do whatever you please.

The process is straightforward. Have your business plan, personal information, and other necessary paperwork ready when you ask for the loan. They will look it over and give you a response. In many cases, if the loan requested is a reasonable one and the business seems solid, they will accept.

Disadvantages 

You have to pay the full amount, plus interest, back. Loans are loans. There is no going around this. When you request a loan, you agree that you will pay back the full amount plus interest.

If you do not pay back the loan, you may lose your business and the bank may come after you. This is one of the risks with going after loans. Failure to pay can work against you heavily. You have to make sure that you pay regularly.

You are not guaranteed a loan or the amount that you want. Direct lenders may agree to give you a loan, but a lesser amount than you requested, or they may decide not to give you one at all. Loans have a process, and not everyone comes out of it with the money they need.