Business owners have been left scrambling for a way to find a business working capital loan or any type of loan for business. The overall restriction of business and personal lending over the last 3 years has left many businesses, especially retailers and restaurant owners, with a lack of affordable sources for working capital.
Even sources that are still providing loans are often approving up to 80% less applications than previously in a bid to eliminate risk from their outstanding loan portfolios. Into this vacuum, a number of options that are advertising themselves as “working capital” loan providers have entered the marketplace. Some of these make more sense for business owners than others, even if the credit is less than perfect.
Payday or “Fast cash” signature loans – These loans are typically designed as a quick, low loan amount solution to an immediate cash crunch. Normally the loan amounts are here are small, less than $2500, and are very high rate and high fee. These only make sense for a business person in a scenario where time is of the essence. Otherwise, this is some of the least affordable capital out there.
Commercial Mortgage- This is a viable option for those businesses that own their own real estate with a decent amount of equity. If time is not a big factor, shop around for a local commercial mortgage broker who knows your area and has a good handle on programs and values for commercial property. Typically, the rates are competitive, even if your credit is less than perfect or you are highly leveraged. However, this type of financing can take up to 90 days to complete, so be aware of this before completing the extensive paperwork.
Merchant Cash Advance- Often marketed by merchant cash advance companies as a way to get retailers who accept credit cards to switch credit card processing services, these type of “advances” have the advantage of being quick. However, they often come with multiple requirements for the business owner to switch processors, pay high upfront fees and interest rates, and buy new swipe equipment as a condition of approval. Often marketed as ” business working capital loans”, they are not actually regulated as loans because they are cash advances against the future credit card receivables. This also means there is no upward limit on the rate being charged. This rate also may change during the repayment period at any time.
There is a new option for business owners with less than perfect credit who are seeking an affordable business working capital loan, but can’t get approved at a traditional bank. This affordable loan is known as credit card receivable financing and is characterized by:
Lower Rates – Rates 50-80% lower than a merchant cash advance with no upfront fees or expenses whatsoever
No Requirements – No requirements to switch processors or buy equipment of any kind.
Quick Approvals and Funding – 48 hour approvals and 7 day, low documentation funding with no business plan or financials required. Owner credit scores down to 550 may be approved.
Regulated Business Loan- Not a cash advance, a true regulated business loan that can build a positive credit history, unlike a merchant cash advance.
If you are seeking a business working capital loan for your enterprise, be sure to research your options carefully, ask pointed questions about approval and credit requirements, and make sure you are understand exactly what you are signing before actually committing to any obligation.
Neal Coxworth is an entrepreneur and a 17 year veteran of the consumer credit industry with experience in originating, underwriting and processing mortgage, student and consumer credit loans