Many small business owners have difficulty getting business finance. It’s not easy to obtain a small business loan for retailers, restaurants, or garages.
However, this does not mean that obtaining a loan for a business is impossible. The location where the loan is sought depends on who you go to. There are typically two main options for business owners: going to their local bank or going to a private lender.
Small business loans and banks
The perspective of banks when considering small business loans is theirs. This perspective is determined by the criteria they use. There are many criteria that can be used to determine the eligibility of small business loans. They are both non-flexible and stringent.
Banks typically require high credit scores. This should average around 700. A bank will reject a business’ application for a loan if they have poor credit. Banks and credit scores are not acceptable for business funding.
It is not true that there aren’t other criteria banks must follow and which they take as seriously. The criteria for banks were established over the years based upon shared experience. They are applicable across all industries.
Banks aren’t keen to fund small business loans, as it is well-known. There are many reasons why this is so. One of them is because small businesses are seen as high-risk investments from banks’ perspectives and experiences.
Private funding and small business loans
A private lender is able to offer cash advance for businesses in a way that is totally different from what a bank can provide. Private lenders offer cash advances to business owners on a completely different basis.
Private lenders typically offer MCA (Merchant Money Advances), so the criteria for these loans is easy. MCA loans are unsecured loans that do not require credit score requirements. This makes it easy to get this type of funding.
MCAs are not always viewed as friendly by small business owners. Most business owners desire low interest rates because the interest rates are much higher than traditional bank loans.
MCAs cannot compete with bank financing. They both finance businesses. However, the process, features, and other details of funding are entirely different.
An MCA loan does not allow you to apply for small business loans. Private lenders rarely turn down small business loans. Most businesses get the financing they need to grow their business.
MCA loans vs. Bank loans
High interest rates are often associated with merchant cash advances, or MCA for short. This is because these are unsecured short-term loans and have higher interest rates than banks.
Many businesses are not eligible for traditional bank loans, no matter how urgently they need or desire it. Their applications will be declined if their credit score is low or they cannot provide the collateral required by banks. Banks can decline small business loan applications for a variety of reasons. Banks do not have to finance applicants they don’t like. This leaves small businesses with little choice.
An MCA loan does not require collateral and credit scores. These are the main criteria for an MCA Loan. The business must be at least 12 month old and in good standing. At the time of loan application, the owner of the business must not be in active bankruptcy. The monthly gross income for the business must be at least $10,000.
It is easy to get an MCA because of the simple criteria. However, there are some drawbacks. For example, the interest rates and length for some business owners. Those who are unable to borrow money or have immediate business needs will be the ones who benefit from this type of business financing. There are some advantages to this, such as the fast processing times that can take just a few days.