Many businesses hit a snag in their plans to expand or grow when the bank turns them down for a loan. Perhaps they are denied a loan because they lack credit history, have poor credit history, or maybe they don't have the collateral the bank wants. Lending requirements tightened considerably after the economic collapse of 2008, which was partly due to loose lending requirements.
The Small Business Administration gives some funding in the form of SBA loans, but credit requirements are only slightly less strict than traditional bank loans, which still exempts most businesses. It takes time to build business credit, and any snags you hit along the way will likely disqualify you from even SBA loans.
When banks say no, businesses have a few options. They can bootstrap the business, reinvesting their profits into growth initiatives like a larger location or increased marketing efforts. Bootstrapping works, but it is slow and it ties up profits that may be needed for supporting the business owner and family.
Another option that businesses have is to find alternative funding to accomplish their plans. There are several types of alternative funding businesses can access, all with their pros and cons.
Credit cards
If you have access to sufficient personal credit, you can use credit cards to finance your business goals. Most times, though, those with larger credit needs will not have sufficient personal credit, and interest rates are typically very high. Credit cards are convenient though, and are fairly easy to get if your credit isn't too bad.
Crowdfunding
You don't have to work very hard to find stories about people raising large amounts of money through crowdfunding, but only 54% of crowdfunders reach their funding goals, according to the Berklee University blog. Crowdfunding doesn't work well without a compelling idea or story, which is communicated through marketing efforts that can take a great deal of time.
Business owners without many hours to devote to crowdfunding efforts, a talent for marketing, and the ability to wait months for funding may not find crowdfunding to be a good option for them. Additionally, many people are unwilling to contribute to crowdfunding unless they get something in return, which may not be realistic for many businesses or may cut into profits too much.
Investors
The positive part of taking on investors is that they can inject a large amount of capital into your business quickly. The downside, though, is that investors always expect a return, which will cut into your profit significantly for a period of time. If you choose to take on investors, be sure to get all of the particulars ahead of time so you know what kind of return they expect and when.
Merchant Cash Advances
Although there are fees involved that are comparable to most loans or credit cards, merchant cash advances can offer businesses a significant amount of capital if they have a strong sales history. Furthermore, those with credit ratings too low to get loans or even credit cards can still qualify for merchant cash advances, which are different from loans.
Repayment is a fixed percentage of your daily sales, so when you have slower days, you pay less. Once the advance is repaid, your sales will be significantly increased, and your profits will be larger going forward.
Getting turned down by the bank may seem like a daunting setback, but the advantages of merchant cash advances make it possible to get the funding you need without all the restrictions of bank loans. And merchant cash advances are fast, with the money being disbursed within days or weeks of your application.
Quikstone Capital Solutions wants to be more than just a source of funding: we want to be your business funding partner and help you accomplish your goals for growth and success easily and quickly. Apply now to start meeting your business growth goals.
