Does your company have poor credit or no credit at all? Business owners, do you have a risky business? If so, you’re probably familiar with how difficult it can be to secure business cash or business funds, including a loan under those circumstances to grow your business.
Did you know that for as many types of businesses there are alternative to high risk lending options available? These can help you get the money your organization needs, regardless of your current financial situation. There is an option for businesses just like yours.
Known as high risk business loans, these are alternative business funding solutions that cater to companies who have bad credit personally, their credit is damaged, or who don’t have credit built up quite yet.
Today, we’re breaking down everything you need to know about these types of loans, so you can be aware of what to expect when you go to sign up for them.
Ready to learn more? Let’s go!
How “High Risk” is Determined
High risk business loans help companies like a beauty salon or an automotive business that might not be able to secure funding through a traditional bank or credit unions.
A bank will look at your credit score and credit history to determine your likelihood of paying successfully on an issued capital business loan. As such, companies with solid credit are often approved for a collateral business loan that covers what they need — and then some.
On the flip side, if your personal credit score is compromised or challenged, you’ll likely experience some kickback, or even denial, when you take this route.
There are a couple of factors that might qualify you as “high risk.”
New or Niche Businesses
First, you might simply be a new business. It can take years to establish the type of transactional history it takes to build a good credit score or credit file.
For instance, if you’re just starting out, the bank has no record of your company’s payment history and can’t verify if you’ve paid your suppliers or vendors.
You may also find it challenging to secure a traditional loan if your business falls into a niche category, experiences seasonal sales surges, or is a start-up designed to fill an unmet customer need.
In these circumstances, there might not be enough historical evidence to prove your company will succeed for the long term. This lack of history can add to the risk of your request.
Niche categories or risk industry may include looking for a commercial truck, beauty salon financing, motel financing, night club financing, liquor store financing, or even restaurant financing. No bank will risk small business lending based on certain business and industry, no matter how well it does.
Existing Businesses with Credit Issues
Alternatively, you may still require high risk business loans even if your company is well-established.
Your company may have been hit with an unforeseen circumstance that negatively affected your credit. You may have expanded more quickly than you could support, your cash flow management may be crippled, or your sales might be down for a period. These circumstances limit your financing options when looking for highrisk business loans from the traditional lending companies.
When this is the case, it’s helpful to know that you can still secure at least some of the money you need, and more quickly than you might think possible.
How to Secure High Risk Business Loans
If you’re ready to research your options when it comes to high risk small business loans, you’ll want to narrow your search to lenders who specialize in this type of financing or funding a bad credit business loan.
These lenders are nonbank entities that are comfortable and familiar with working with companies that have little to no credit. As such, they’re able to offer you loan options that better fit your requirements. These loans are not asset based. Typically, they do not require traditional personal guarantees and are considered unsecured business loans.
Most lenders of this sort will examine your company’s business model to determine the level of liability it presents.
Keep in mind that by their nature, these loans are still designed to protect the lending agency and reduce its risk. This risk analysis means that they’ll often carry higher interest fees and shorter terms than a traditional loan.
Though some high risk business loans can offer terms of 12 months or more, the average duration is between three and six months.
Before you start, make sure the lender you select understands the totality of your credit history and business operations. Some have restrictions, such as certain industry types, that may exclude you from applying.
Avoiding a Scam: What to Look for in a Lender
When you’re seeking an alternative lender, you’ll likely find that there are many options. From in-person lenders to web-based micro lenders, there are many groups available that cater to this market.
It’s critical to do your research and ensure the lender you select is credible. A few things to look for as you journey through the loan process include:
Reasonable Rates: We’ve already discussed that fees and interest rates are usually higher on high risk business loans than traditional, bank-issued ones. These costs shouldn’t be so outrageous that you question their legitimacy. Expect to pay between 18% to 35-40% interest.
Detailed Agreements: Your lender should offer you an agreement when you apply for your loan. It should define and delineate the fees you’ll pay and the length of the terms. If your documentation is incomplete or vague, don’t sign until you get the details you need.
Reputable Transparency: Your lender’s business info should be easy to find on its website or storefront.
You shouldn’t have to dig around to find information on the company. Look for ones with a reputation for delivering quality, customer-focused support. You can usually find this data through online reviews.
Moving Forward: Building Your Credit
One of the best things about high risk business loans? As you make timely payments on them, you’ll be taking steps to build up (or rebuild) the solid credit history you need.
Many lenders will also report your successful payments to credit bureaus, helping you boost your credit score over time. So, once you settle on a lender, it’s important to keep up your end of the agreement. You can use this opportunity to strengthen your business’ financial security for the long run.
Need a Business Loan? Start Here Today
Are you seeking financial support for your company, but find it difficult to secure funding from a traditional bank? If so, we’d love to help.
As lenders, we offer a myriad of business finance and capital business loan options designed to fit every corporate need.
From high-risk loans to capital loans, short-term loans, and even startup business loans, we provide it all.
Do you need:
- Business Equipment Financing?
- Franchise Financing?
- Nightclub Financing?
- Retail Financing?
- Accounts Receivable Financing?
- Truck Financing?
- Purchase Order Finance?
- Minority Business Loans?
- Term Loans?
- Merchant Cash Advances (if you do credit card processing and need a business cash advance)?
All you need for the approval processes are the last 3 months’ statements from your business bank account, our one page application (you can fill out the form online) and give us 24 hours to approve your request and one business day to fund. Just apply online.
The best part? We operate on a performance-based loan alternative business model. Unlike traditional lenders and their bank loans, this model means we’ll work with you to ensure you don’t miss out on valuable funding options and loan alternatives.