Friday, May 11, 2012

Business Loans Based On Business Performance And Not Personal Credit

As the so-called recession / not recession drags on, the one constant is that small businesses continue to struggle in obtaining capital for growth or development. And, without growth and development, these businesses will remain stagnate or eventually be forced to shut down.

Part of the issue with these businesses in obtaining a business loan is not so much based on a poor performing business but more related to the poor credit of the business owner. And, as this slow economy remains sluggish, personal credit score will continue to decline.

Banks and most private lenders will pull credit reports first. If your personal credit score is low (below 700 FICO) regardless if you have business credit or not they will trash your application and move on to a deal they know they can get funded.

It is just the nature of this beast.

The bad side is that those businesses that are still generating revenue and still have huge potential are also being passed over. The question is should they be?

There is a growing trend in small business lending where lenders are starting to look past credit scores and focus more on the performance of the business on its ability to generate revenue - as it is this revenue that will be used to repay the business loan.

And, that is what your lender wants you to repay both principal and interest.

Bank Statement Business Loans:

These new crops of business loans are termed Bank Statement Business Loans.

Very similar to a business or merchant cash advance, these loans look at your business's past results. But, instead of focusing on your merchant statements (your past credit card receipts) or requiring you to switch merchant processors, they look at your average bank statement deposits and balances.

And, if you continually have cash flowing into your bank account or retain sufficient balances, your business can factor that performance into a cash advance to be used for working capital, operating capital or any business need.

Example: Let's say that your business has, over the last 6 months, an average balance in your business bank accounts of ,000. Now this is an average. Sure money will flow out to cover expenses or purchase more inventory or supplies. But, your business is also generating new revenue that replaces that outflow; resulting in this average balance.

You need working capital and turn to one of these bank statement financing companies who will fund 3 times your average daily balance or ,000 in working capital not based on your credit but based on your business's ability to constantly generate revenue.

Most of these financing companies will approve loan amounts between 2 to 5 times of your average daily balance.

Plus, the more cash you deposit or hold in your bank account the higher the loan amount.

What could be better? A business loan based on the merits of your business and not simply on your personal credit score.

Some benefits of these bank statement business loans are:

Low FICO scores or that your bad credit does not matter (FICO scores below 500 will be accepted).
The loans or advance is based on your business performance.
None of the burdens or limitations of merchant cash advances like being based on credit card receipts only or switching merchant processors thus, no merchant processing required.
No collateral - the loan is unsecured.
Almost all business types are accepted.

So, if your credit is holding your business back from growing to that next level, then put on your entrepreneur hat and seek out a solution to the problem.

Far too many good and great businesses are being turn down for a business loan based on outdated bank underwriting policies. It is good to see that other entrepreneurs in the financial markets are realizing that these are missed opportunities and as such are doing something about it.

Thus, if you are in the market for a loan only to find you are getting turned down due to bad credit, then you to should do something about it by looking into these bank statement business loans. What is the worse that can happen? You get the money you need to grow and succeed in this down economy.

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