Moving beyond credit scores in small business loans

Have you ever felt like your life revolves around that tiny three digit (If it’s not three you’re in real trouble!) number named a credit score? It can ascertain whether you rent a dwelling , receive a mortgage, go to school, how much interest you pay , or whether you can get small business financial help.

Traditionally most banks will lend or provide small business financial assistance to a business based on a variety of factors. Cashflow, time in business, personal experience of the proprietors, past tax returns and personal and business credit scores are all factors . This is all well and good if you have managed to sustain a good or excellent credit score. If however, you have made errors, missed payments, or had to hold a high balance through an emergency then you will have problems getting financial help from a traditional lender.

Now you may have thought that sounds unfair . The personal finances of a business proprietor don’t have to indicate the fate of the business. Especially if the business is established and doing ok on its own.

There is actually a migration away from the focus on personal credit in the lending process. This option small business financing help may be the answer for quite a few small business owners who have been turned away by the traditional lenders.

 

How cash-flow-based business loan funding operates.

Cash flow based small business financial help generally comes in the form of an advance. E.g. merchant cash advance. The lender will purchase your business’ future credit card sales at a somewhat lower amount and advance you the cash. Essentially, if you are anticipating to make $10k the lender will purchase that $10k for $8k. You have $8,000 to put in your business and no monthly payments to make. The key to this being a workable option is of course in the cost. Companies supplying good small business financial help in the form an MCA will also offer a discount on your credit card processing fees. This will help offset the slightly higher cost of an MCA compared to a bank loan.

Another alternative are similar too a standard loan, except that the lender is more concerned with your monthly cash flow, rather than credit. These loans usually offer flexible repayment, such as small micropayments taken day by day or with each dealings.

Regardless as to whether this is the optimum option for your small business, it brings up an interesting question about the role of our credit score in our lives. Are these new forms of small business financial assistance an indication of the slow removal of personal credit from business finance, or simply an choice to a traditional loan? Only time will tell.