Getting your business back on track isn’t an easy task. As government regulations demand more specifications and requirements, banks are forced to deal a bad hand by tightening their lending requirements and getting more meticulous in selecting clients to share a contract with. This, in turn, limits many small business owners from their opportunity to refinance and keep their businesses afloat.
Fortunately, we can take alternatives and find ways to increase the chance of getting a loan. In this article, we will be listing alternative loans for you to check and tips on how to increase your creditworthiness for more refinancing opportunities.
Why Is My Application Turned Down?
Before seeking some alternatives, it’s better to start off by analyzing your business model and pointing out some key factors. Banks and other financial institutions don’t reject applications without a solid reason.
We think the reason lies in two major factors. Here are the common reasons why loan applications are rejected and what you can do to mitigate them.
Low Credit Standing/ Low Credit History
In most traditional and alternative business loans, your credit score dictates whether you are eligible for the contract. These institutions prefer negotiating with someone with a higher score, as it is a solid basis for your capacity to pay. Because of this, small business owners tend to face a hard time getting approved when their application requires a credit inquiry.
If your business is suffering from a low credit score or hasn’t been in the industry long enough to build a credit history, a good option is to apply for a personal loan. If your credit score is satisfactory, you might get a better chance of getting your funding approved under your name.
State banks and institutions have offered personal loans for bad credit Houston TX business owners, Miami FL entrepreneurs, and more as a loophole to help owners get through the financial crisis.
No Collateral/ Retrievable Asset
Lenders are likely to approve businesses that can arrange collateral, such as work equipment or office property. This is to secure the contract further and possibly increase the quality of your perceived loan.
Small business owners are forced to deal with collateral for funding because of their low credit scores and credit history. As a result, some rely on common alternatives, such as Auto Loans, Home Equity, and Personal loans. This may sound like a piece of bad news, but having collateral gives you better opportunities in how you pay your loan.
One of the things collateral loans offer to lenders is a flexible payment scheme with low interest. In addition, since collateral is offered, lenders are more willing to renegotiate and adjust how you pay your dues. Overall, this risk comes with benefits and a certain level of consideration to keep your business afloat while maintaining your collaterals.
Assuming that you’ve set yourself a good collateral backup and an alternative to proving your creditworthiness. Let us check some of the reasonable alternative loans and see which of them favours your business.
Loan Alternatives: Accounts Receivable Financing
When traditional banks are not an option, you can count on accounts financing or factoring loans to boost your business. These institutions rely less on credit and collateral but emphasize the quality of your outstanding payments.
Simply put, these companies would offer to financially buy your invoices while waiting for your clients to pay up. Once payment has been made, you can pay back the company. Additionally, if your clients are steady payors and have a good business relationship with them, you can refinance and outgrow your initial loan.
It is easier for small businesses to cover their expenses as long as the lender keeps buying more invoices and your clients keep paying on time.
Loan Alternatives: Peer To Peer Lending
Also known as social lending, peer-to-peer lending lets you showcase your business to like-minded individuals who offer loans with varied interests. Lending communities are composed of individuals that could either be private investors, businessmen, or a combination of both.
Social lending is entirely different from other lending alternatives. As a borrower, you have to showcase your business and pitch them to attract investors, as these investors are keen to look at small businesses with the highest chance of success. If they perceive your business as a growing opportunity, they are more inclined to give you a loan or take part in the company and invest.
No matter the amount of funding needed, it is always a hurdle for small business owners to set up a favourable loan, especially in traditional banks, as they always require more than what you can give. Fortunately, alternative loans and other institutions can help you lessen rejections and get you through along the way. Regardless, always prepare an effective business plan and backups to raise your chances of refinancing your business.