When you apply for a small business loan, lenders will often look at both your personal and business credit scores. Creditors usually accept a business credit score of 75 and above (based on 1 to 100) and a personal score of at least 640. As you'll recall, these two scores are calculated by taking into consideration things like payment history, time in business, etc. These two numbers essentially measure your risk as a borrower. The better the score, the more likely a lender will be to give you a loan because they can expect to get their money back. Credit score determine whether or not you can get a small business loan, but they also determine what your interest rates will be and they may also stipulate different conditions in your contract. If your credit is too poor to attain a small business loan, there are alternatives. Some of those alternatives include:
Merchant Cash Advance (MCA): A Merchant Cash Advance is fundamentally a sales transaction rather than a loan. When you secure a MCA, you "sell" a percentage of your business's debit and credit card transactions to the lender. For MCA's credit score matters, but much less than in other loan processes because payments are coming in more quickly. MCA's are often attractive to small business owners because the terms are less stringent and it is sometimes easier to pay a loan back on a transaction-by-transaction basis rather than in lump sums.
Crowdfunding: Crowdfunding is essentially fundraising for your business. Businesses can do this through friends, family, networking, business contacts, etc. Crowdfunding can be much more "under the table" than traditional loans because in a lot of crowdfunding situations, you will not have to promise much (if anything) to your lenders. There are several crowdfunding platforms, one of the most popular right now being Go Fund Me. These platforms let you share your business plans with your social media friends and a link is provided for those friends to make quick and easy donations to your business or cause.
Alternative Lenders: These are non-traditional lenders that are less governed than banks. They do not look too far into credit and can process loans quickly. However, alternative lenders almost always have extremely high interest rates. Alternative lenders are a good source to go to for quick cash, but only if you can pay back the loan quickly. If you can't pay the loan back quickly, you will end up paying much more for the loan than you ever anticipated.
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