A small business loan can be the difference between keeping the doors open and having to shut down. If you are unable to secure a loan from a bank, a number of alternative lenders have emerged in recent years. These lenders help many businesses when banks will not.
Ricky Nila, CEO and founder of Lending Attic, a San Antonio-based commercial lender, says alternative lenders like himself look at four factors when assessing a loan applicant.
Credit Score – An entrepreneur’s personal credit score is important. Nila says a business owner can likely get a loan with a score as low as 500, but the best interest rates will go to borrowers who have a credit score of 720 or higher.
Of course, borrowers with credit scores over 700 can usually get bank loans, but Nila says some still opt for alternative lenders because of the ease and speed that funding can be made available through alternative lenders.
Time in business – Banks consider businesses that have been operating less than two years start-ups, and are less likely to approve loans to them. Alternative lenders will consider loans for businesses that have been operating as few as four months. Not surprisingly, businesses that have not been open for two years will pay higher interest rates than those that have been operating for more than two years.
Monthly revenue – The average daily balance of your business bank account will determine how much money can borrow. A business that has less than $5,000 in monthly revenue will have a difficult time securing funding from any lender.
Collateral – Home equity, investment real estate or equipment owned by a business can all be used as collateral to help secure a loan.