Finding bad credit business loans may seem like impossibility as a business owner, given the restricted credit environment that we currently find ourselves in. The best option for any business owner is always going to be a loan backed by the Small Business Administration and funded through an SBA approved bank. The reason for this is that these loans usually have the most advantageous interest rates & terms. However, the majority of business owners will not qualify for this type of loan due to the restrictive underwriting requirements.
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Below are three options a business owner needs to consider if they hope to get business working capital in the current environment, especially if the business or personal credit has taken some hits due to the recession.
1.)If You Own Commercial Real Estate - If you own the building or property that your business resides in and you have a good amount of equity, you may have a real option here that is comparatively affordable. The key thing to look at is how much you believe the property may be worth, how much you owe on it, and how much you are looking for in a loan. The advantages with this option are that even with bad credit, the rates will likely be the best of any option because you are securing the loan with real estate. Most commercial property lenders will go to 70% of the appraised value of the property, minus the amount you owe as a loan amount.
The downside here is that that processing time may take upwards of 90-120 days and the property will have to be appraised. Usually this appraisal fee is a hefty, low 4 figure expense that comes out of pocket with no guarantee that the value needed will be the one the appraiser actually comes up with. So keep in mind that while this may be the most affordable option if your credit is difficult, it may also take the longest, and you may end up empty handed if the appraisal comes in low.
2.) If You Have a lot of Equipment - Businesses that are equipment intensive such as restaurants, construction companies, etc may have an option for a secured equipment loan. This is a loan, usually in 3, 5, 7 or 10 year term with a balloon payment that is secured against the appraised value of the equipment that your business possesses to operate. Keep in mind you have to own the equipment outright, and not have being leased or financed to you currently. Minimum loan amount for a loan of this type is usually a $100,000, though you may find some lenders or brokers who will work with a slightly smaller amount. The rates are fairly reasonable for difficult credit situations because the loan is secured, but it may take 30 days or longer to get the funds and the equipment in question will need to be appraised.
3.) If Your Business Accepts Credit Cards - This option, known as a merchant cash advance, is the quickest of the three, meaning these loans can put funds in your hands in a matter of days or weeks. These loans, technically called "advances" usually come from credit card processing companies, or merchant cash advance companies. While they can get the cash quick, they also charge exorbitant rates as high as 50% with large upfront fees and may come with a requirement to buy new swipe equipment and switch credit card processing services. This unregulated "advance" is usually predicated off of businesses' credit card receivables.
Credit Card Receivable Financing - This is a new player for bad credit business loan and is similar to a merchant cash advance, with low documentation and quick funding, but with interest rates that are 50-80% less than a traditional merchant cash advance. Additionally, these are true regulated business loans that carry no upfront fees or requirement to switch processors or buy new swipe equipment. As of this writing, they can handle owner credit scores down to 550 and a loan amount as high as $500,000. According to my source, they can usually get a zero cost pre-approval in 48 hours and fund the loan in 7-10 days.
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