What Is A High Risk Loan?
A high-risk small business loan is a funding option for business owners and their companies with poor or bad credit.
There are as many reasons why a company is “high risk” as there are businesses. Generally, the perceived danger is a reflection of both the owners and the company’s overall qualifications.
- A newer company?
- A startup?
- Do you have challenges with your credit?
- Are you losing money?
- Do you lack collateral or assets?
The first thing a traditional lender like a bank considers is your FICO score. If you do not have at least a 680 score, you won’t be eligible for funding.
Next, you must provide the last 3 years of both personal and company tax returns. If you have been in operation for less than three years, the bank will disqualify you as you are considered risky.
Traditional lending institutions like banks and credit unions may flat out reject your request based on any number of requirements.
Fortunately, alternative lenders who provide online funding welcome the opportunity to help address your capital needs.
You will need a lender who is comfortable with the risks associated with your industry and owners.
These lenders (non-bank lenders) are financial service firms that specialize in originating capital to companies that have more significant risks.
Their analysis combines factors such as FICO score and industry.
What Makes You a High-Risk Business Borrower?
Here are of few of the characteristics that many owners share.
Low Personal Credit Score
A low personal FICO score is a reflection of how you manage your money. These issues include:
- Late payments. Your history is 35% of your score.
- Defaulting on payments. Missing payment is an indication of trouble ahead.
- Charge offs, collections, and defaults. You are not paying the full amount due to a lender.
- Bankruptcy. Must be fully discharged at least 6 months.
- Liens. Amounts over $175K must have payment plans.
- High available credit limit utilization. Keep it under thirty percent.
All commercial lenders will assess the company owner’s creditworthiness, including alternative lenders.
If you have an insufficient history, sometimes called a “thin file,” or you have a terrible FICO score (below 600), you are likely to be marked as high risk.
Low Annual Revenue
Banks typically require at least $1M in annual business revenue; otherwise, the cost of originating the capital is far too expensive.
Lenders consider income as an indicator of the ability to meet financial obligations. Most online lenders want to see annual revenue above $150,000 a year.
Limited Business History
Unlike banks, most online lenders will consider a company if the operations are less than three years.
Generally, alternative lenders like to see at least 6 months of services. Companies with two years or less are often flagged.
These companies do not have the track record proving their ability to be profitable consistently.
Some industries historically are very unstable or unpredictable. Due to the nature of the industry, the cost of funds is much higher
What industries are considered high risk?
According to Small Biz Trends the top types of businesses to fail*:
- Mining (51.3 percent)
- Manufacturing (48.4 percent)
- Services (47.6 percent)
- Wholesaling and agriculture (47.4 percent)
- Retailing (41.1 percent)
- Finance, insurance, and real estate (39.6 percent)
- Transportation, communications, and utilities (39.4 percent)
- Construction (36.4 percent)
*These are five-year survival rates.
“The biggest risk is not taking any risk… In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” –
Mark Zuckerberg, CEO Facebook
What is a high risk industry?
Here is a limited list of higher risk industries.
Accountants, Adult entertainment, Attorneys, Bail bonds, Computer hardware sales, Construction, Gas stations, Home-based companies, Insurance companies, Internet businesses, Moving companies, Non-Profits, Oil and Gas industry, Real estate brokers, Rental or sales agencies, Sole proprietorships, Travel agencies, Vape shops, Web advertising
High Risk Business Funding Alternatives
Owners and companies with damaged FICO scores can apply for these funding options.
Since the applicants have challenges with their credit files, they generally cannot get approved with a traditional bank.
Perhaps your sales have declined due to unforeseen circumstances, or the establishment is seasonal in nature.
Maybe a late-paying customer has crippled your cash flow, and you need to meet this week’s payroll.
Other significant determinants of whether the request for capital is considered “high risk” is the time in operation and industry type.
Companies that are relatively new, unusual, or categorized as a “high risk-high return” business, will fall into this category.
Terms and interest rates reflect financial exposure to the lender — the higher the uncertainty, the shorter the terms, and the higher the rates.
There is also a reduction in funding amounts.
Other lender requirements include the average daily cash balance in your bank account.
Lenders will also consider your company’s overall creditworthiness.
There are ten primary options available to those with a damaged FICO score or riskier industry types.
When lenders mark your company as risky, you can expect to pay a higher rate and have shorter terms.
The truth is that most owners and entrepreneurs of SMB’s are not familiar with creative financing options.
The bottom line is that they do not know what options are available when traditional institutions turn down their bank loan requests.
These banks make it challenging for SMB’s to get working capital to grow or expand their business.
Here is a list of the Top 10
#1 Bad Credit Business Loan Options
These lenders make high-risk business fundings available to those with FICO scores above 500.
These are usually unsecured business loans, requiring no assets or collateral. These are fixed payments. You can expect to repay these daily.
Many clients who initially object to the daily payment find it to be beneficial. The reason it is advantageous is that it allows for better cash flow and money management.
Ultimately, they all agree that they do not miss the daily payment. Besides, no one likes writing b checks at the end of the month, do they?
Bankruptcies discharged at least six months ago are OK. Judgments and liens are OK within specified limits. Sometimes they require a payment plan.
#2 Fast Business Loans
Imagine applying for high-risk business loans, and within the next 24-hours, you are approved and funded.
Many of the top alternative lenders have built sophisticated lending algorithms and matrixes that can analyze over 100 data points in minutes.
The quick response enables the borrower to find out whether they qualify and to fund the same day.
#3 Bad Credit Business Cash Advances
Cash advances are not a capital loan. Your credit card and debit card sales determine the approval. Not your personal scores. The merchant cash advances are perfect for those who cannot qualify otherwise.
The cash advance is also known as an MCA (merchant cash advance). You are selling your future receivables at a discount.
The advantage is you can receive your funds quickly. Repayment is through your merchant credit card processing account.
A percentage of your nightly batch orders is reserved or held back by the lender.
The advantages are a variable payment that allows for better cash flow management.
Days that generate more revenue will result in a slightly higher amount. Naturally, slower days with fewer sales or low revenue mean smaller payments.
You’ll have a rough idea of how long it will take to repay the advance based on your prior sales or merchant history.
Most lenders today do not require you to switch merchant accounts.
COMPARE BUSINESS LOANS
MERCHANT CASH ADVANCE VS. CAPITAL BUSINESS LOAN
MCA is on credit card sales ONLY vs. Total revenue
Holdback percentage fixed at 10% to 30% vs. No holdback
Variable rates vs. Fixed rates
ACH’d every day vs. M – F (no weekends)
Erratic cash flow vs. Dependable cash flow
#4 Accounts Receivable Financing (A/R Financing)
Accounts receivable funding or invoice financing is a type of asset-based financing. These lending options are an opportunity to leverage your receivables for cash.
You are using the money owed by your customers to get the cash advanced to you.
The beauty of account receivable financing is your FICO score is not the determining factor.
Account receivable companies provide factoring. This alternative funding option is ideal for companies with slow-pay customers and who have personal challenges.
The factoring company gives you a reduced amount of the unpaid invoices or receivables. The significant advantage here is your ability to free up your working capital.
Rather than have your invoices languish for 30 or 60 or more, you can receive the cash upfront.
Invoice Factoring Rates
What determines how much you receive for your invoices or receivables?
- The rating of the company paying the receivables
- Size of the company paying receivables (bigger is better)
- Age of receivable (the newer, the easier to collect)
The major perceived drawback or perceived negative to this type of financing is that you relinquish the collection of funds to the factoring company.
What this means to you is that you can now focus on your core strengths.
Many owners feel that this process makes them look weak financially. This belief is just a matter of perception.
There are some industries, like the garment industry, that cannot survive without this type of financing.
RICH DAD POOR DAD
“NOT ALL DEBT IS BAD DEBT.”
BAD DEBT: Bad debt is any debt that makes you poorer like credit card debt, car loans, etc.
GOOD DEBT: Debt that makes you richer like a loan for investment properties, business equipment that will make you money or improvements in cash flow to generate more business.
#5 Purchase Order Financing (PO Financing)
Suddenly you get a large order. The challenge is you can’t fill it.
Purchase Order Financing is a solution to bridge the gap between your cash flow or available working capital.
If your company turns down orders, the word gets out quickly to everyone. The net result is a hit on your reputation.
What’s the solution?
When you opt for purchase order financing, you allow the lender to pay your supplier for you to fulfill the job.
You are receiving a cash advance against the collateral of the finished product.
You may not receive 100%, but it typically covers a significant percentage. Then the purchase order finance company takes their fee from the collected invoices.
Like the accounts receivable company, the purchase order financing company is responsible for the collection process.
A secondary possibility is that the purchase order financing company sets up a LOC with your supplier.
That PO financing company sets up the LOC in their name, and they provide the financial backing.
This funding option is a perfect solution for those that are at high risk.
#6 Collateral and Asset Based Loans
Using collateral or assets can be a viable solution for the high-risk business. Typically a small company will leverage this collateral when they have short-term cash flow difficulties.
What can you use as an asset?
- Auto titles and
- Other types of property
Asset-based loans (ABL) is a type of financing that frequently provides a revolving LOC. The asset secures the funding.
Note that if you default, you risk losing this property or collateral.
#7 Peer-to-Peer Lending
In today’s digital age, peer-to-peer financing is an attractive option. P2P is also called social lending or crowdlending. There are web portals that arrange for this type of loan.
As the business owner, you can look for a “peer” to invest in your business. The portals match the borrower with the lenders.
The interest rate will reflect an analysis of your creditworthiness.
Look at your local banks or the traditional lenders when you have an individual who will use their excellent financial history to guarantee the funding request.
This signer is someone who trusts you and believes in your business. Signing means they are prepared to take the risk as the guarantor.
#9 Credit Unions
Sometimes credit unions are willing to look at high-risk business loans.
Perhaps you can find a credit union that serves your industry. Your industry and its alliance to the credit union might give you a leg up on getting the financing.
#10 Bridge Loans
Typically bridge loans are a very shortterm loan or interim financing to cover a period before more substantial funding is made available to the business.
The terms to repay can be a few weeks to a year. You may hear it referenced as a gap or swing loan.
If you are thinking about this type of financing, there are several factors to consider. These can appear to be expensive, with interest between 15% to twenty-four percent, depending on the risk.
Usually, there will be an origination fee or other upfront processing fees of two percent. There may even be a success fee upon the successful payoff of the facility.
You will need to put up some collateral or asset and may be required to sign a personal guarantee.
“He who is not courageous enough to take risks will accomplish nothing in life.”
Not all online lenders are the same. Much like banks, they have limits to the amount of risk they will take on any given funding request.
Some alternative lenders exclude specific industries, credit scores, or blemishes in your credit history.
As an example, you will find very few, if any, who will finance medical marijuana.
Risk, as we explained previously, can be minimized by charging a higher rate with shorter terms.
The SBA loans (Small Business Association) will offer up to a 10-year repayment option and 25 years on their commercial real estate deals.
You will not find these rates or terms with your typical online high-risk lender.
Terms with these lenders can range from three to six months to perhaps 9 or 12 to 18 months.
Most of your online lenders like Sunwise Capital will consider higher risk. Another way to reduce the risk is to lessen the amount of capital made available to your company.
One consideration is a microloan. A microloan is usually any amount between $5,000 to $50,000.
Micro loans are offered to disadvantaged borrowers to encourage entrepreneurship and ease poverty. Women and marginalized groups are good candidates for this type of funding.
ALWAYS REMEMBER TO MUST ASK YOURSELF THESE 3 QUESTIONS
- How much money do I need?
- What will the money do for me?
- What happens if I don’t get the money?
Sunwise Capital wants to know if you have been turned down because of bad personal credit score or for other reasons?
Is your cash flow getting squeezed?
Do you need a lender that gets you the best solution for you?
The advantage of working with Sunwise Capital is clear. We look beyond the typical bank products and lines of credit to find the right solution for each customer’s requirement.
Sunwise Capital offers fast and easy short-term financing even if the bank says you or your company is high-risk.
We simplify the lending process so any company can get fast and easy funding.
The combined experience of our executive team is close to 100 years working with businesses like yours across the nation.
We believe a long-term relationship with you is beneficial to both of us, and we are ready to invest in you today.
We use our offer performance-based model that provides financing to companies that are unable to go to a traditional bank for capital.
What we do differently is that we analyze your cash flow.
We use over 200 indicators that look at the health of your application.
Our underwriters get creative to offer capital to companies that get turned down by the banks.
Our out of the box thinking and evaluation process makes it easier for Sunwise Capital to provide you capital at fair rates. We pride ourselves on our transparency.
You will talk to underwriting directly
— no messing around with 23-year-old salespeople just trying to earn a commission.
We will discuss with you all your financing options.
Sunwise Capital is on your team. Our idea is to sit next to you at your desk, not across from you.
Our mission is clear. We want business owners to get predictable access to funding.
Sunwise Capital stands ready to provide business owners of industries with the best financial solutions in the industry.
FREQUENTLY ASKED QUESTIONS
Q: What are examples of who qualifies?
A: We fund over 700 industries: Here are a few examples.
Retailers, Bars and Restaurants, Auto Repair, Mechanics, Tire Sales, Doctors, Dentists, Plumbers, Electricians, HVAC, Internet Businesses, Home-Based Businesses
Q: What are the general eligibility guidelines?
A: Most business types will be eligible if they:
- 1 year In Business (12 months)
- $200K in annual revenue
- FICO 500+
- No open BK
- Liens no more than $175K (with a written agreement)
- At least 12 months remaining on their lease.
- Funding including to high-risk borrowers based on poor credit or highrisk industry type.
- There are no broker fees or set up fees.
- Fast access same-day approvals and funding.
- Sunwise Capital offers unsecured term loan funding options. That means no personal or business assets or collateral.
- No reporting of the funding to the Experian, Trans Union, and Equifax on the personal side.
- $10K up to $2,000,000.00!
- Most terms are from 3 to 18 months.
- Higher revenue and time in business to 2 years.
- Most businesses can borrow 2 – 3 times a year.
- There are no spending restrictions!
Q: Who does not qualify?
A: Business Owners with open bankruptcies
- Not paying current bills (personal-business)
- Sub 500 FICO
- Too many NSF’s
- Behind on rent/lease/mortgage
- Less than six months in business
Q: What does Sunwise Capital provide?
A: The money every business owner needs to secure their business. (Access to working capital when they need it!)
Q: Who qualifies?
A: The vast majority of all qualified business owners who apply who meet our minimum requirements.
Q: How much money can I get?
A: Sunwise Capital funding ranges from $10,000 – $5,000,000. The maximum amount is a percentage of your monthly/annual business sales/revenue. The loan amounts are equal to approximately 10% of your monthly sales volume (including cash, checks, or credit cards). They can increase with better rates and terms as the relationship grows and develops.
Q: What are the rates?
A: Very often, these are not based on an interest rate but factor rates. The way factoring works, in general, is that you will sell future revenue at a discount.
Q: Do I have to secure my request with any assets or collateral?
A: No, these are unsecured. If you have a proven business track record, this helps us determine the amount of your funding request.
Q: How much interest do I pay?
A: These high-risk business loans are provided based on a factor rate. The fee is considered interest and is entirely written off or tax-deductible.
Q: How do I get my money?
A: Funds ACH’d into your bank account.
Q: Are there fees to have funds released?
Q: How quickly for funds to be released to my bank account?
A: Fast decisions as fast as one business day, fast funding in 1business days.
Q: Are the Sunwise Capital high risk small business loans reported to any personal credit bureaus?
Q: How can Sunwise Capital help my business?
A: Sunwise Capital high risk loans provide you with access to funds when you need it.
Q: Will the Sunwise Capital cash loan appear on my credit report?
A: No, the funding will not appear on your credit report. It will have no impact on your debt to income ratios or your ability to apply for financing. We do, however, report to the business bureau’s helping to build your business history.
Q: Do I have the option for early payback?
Q: Can I qualify for a discount if I pay early?
A: Yes, and No, we do offer a discount for paying earlier than scheduled. Ask your underwriter.
Q: How do I pay the money back?
A: Automatic bank ACH. Payments for high risk business loans are usually daily, although you may qualify for weekly.
Q: Can I get more money if I need it?
A: Yes, Sunwise Capital provides you with additional funds, typically you can borrow 2 – 3 times per year. Our objective is to create a long-term relationship. As you start to repay, we will consider providing you more money. This additional capital will be with lower rates and longer terms.
Q: Are there any restrictions on the funds?
A: We believe you know your business best. Therefore, there are no restrictions if it’s for business purposes like:
- Expansion & Renovation
- Invest in Newer Technology
- Insurance Payments
- Hire Additional Staffing
- Purchase Equipment
- Cash Flow
- Bulk Supply Purchase
- Consolidate Debt
- Working Capital
- Tax Payment
- Funding Your Dreams
Q: Is there a cost or obligation if you approve my loan?
A: No cost, no obligation. If we approve you for more than you need, you’re not obligated to take the full amount. Once you pay approximately 50% of the term, we will make more capital available.
Q: How long does it take to get approved?
A: 24 hours.
Q: Do you pull my credit?
A: We start with a soft credit pull (not a hard pull)
Q: Is there a personal guarantee?
A: There is no traditional personal guarantee required on high-risk loans. We offer no collateral loans.
Q: What is the application process?
A: Just apply online. You can complete the one -page loan application and supply the last 3 months of business bank statements or call 888-456-9223.
Q: Is there any paperwork involved in the approval process?
A: There is a short 1-page application plus three months’ business bank statements to check eligibility.
Q: Is there any personal collateral?
A: No. Your business history and bank statements help us determine the amount.
Q: Are there any monthly premiums or broker fees?
Q: I have had some problems with my FICO score in the past. What’s the impact?
A: Sunwise Capital approves most high risk loans primarily on the health of your business and other factors. Your credit plays a role; however, it is not the critical determinant like a bank.
Q: What if I had a bankruptcy?
A: Bankruptcy is not an issue if the BK discharge is six months or more.
Q: How does this compare to a Merchant Cash Advance?
A: The MCA is based only on your credit card sales.
When I first applied, I was a little nervous since I had only a few years of business experience. I had a discharged bankruptcy after an expensive divorce case.
If you have bad personal credit but it is still very possible to get a loan. Unfortunately, I was a little desperate for the startup money and was able to get funded by Sunwise Capital. I was definitely surprised but happy that I eventually obtained $10,000 financing for my company.”Harold B. Malley, Dublin, OH
“I was thinking about getting a small business loan for my company a while back and applied with Sunwise Capital. I found out during the very fast process that I could leverage my good personal credit and obtain business financing faster than not using my personal credit.
By doing this, could get enough money to build my local franchise company, even though I’m in business for just over a year – 13 months to be exact. Thanks for your professionalism, I couldn’t have done it without you.”Adam F. Thomson, Salt Lake City, UT
“I had applied to several banks before meeting with Sunwise Capital and was turned down by all of them. I was able to obtain $100,000 loan…all CASH into my account!”Brian Jonas, Las Vegas, NV
Liquor Store Financing
“Because I had an existing business but poor personal credit I was able to get funded. Pretty fast and easy. So far, I have obtained a $50,000 loan and am already looking forward to borrowing again. Thanks for all the help.”Marianna McClure , Chalmette, LA
“My personal credit is terrible. I kept getting turned downed at multiple banks for nightclub financing, because of my personal credit. I applied with Sunwise Capital. So far I have made some excellent progress and have obtained a $10,000 loan. Thanks guys, I appreciate it.”Brent Russell, Indianapolis, IN
Business Equipment Financing and Working Capital
“My business is nine years old now and am excited about what just happened on Tuesday. I was approved for a $1.2M loan that is going to be vital to my manufacturing company as we continue to grow. I had an outstanding line of credit with Wells Fargo. They would not give me more.”Eli Sigurdsson, Irvine, CA