All successful and growing businesses need increasing levels of working capital to support their growth. Many of these companies turn to various forms of debt to secure that needed capital. Lenders involved in making such loans follow a range of guidelines and policies, all focused on properly assessing the risk involved. While credit scores are often a part of that risk assessment, certain lenders find other ways to control their risks.
Looking Beyond Bad Credit
If a company with certain credit problems turns to traditional lenders, they will generally find few opportunities to borrow the money they need. In fact, the more difficult the economy and the more urgent the need, the less likely such loans will be offered.
However, there are professional, established lenders who regularly work to provide such loans based on different criteria. These sources of financing look closely at a company’s actual operations and ongoing revenue as a source of repayment for any loans made.
While traditional lenders such as banks will seldom consider an applicant business with less than two years of operations, companies with as few as six months of revenue can look to these nontraditional sources of financing.
These lenders understand that credit scores are looking back at past history, and those numbers often have little to do with ongoing, future success. If a company demonstrates a reliable stream of income, that provides the lender with a reasonable source of servicing any debt incurred.
Other forms of potential security for such lenders are the assets of a business. If a company possesses assets such as collateral, vehicles, or equipment, the equity in those assets provide the opportunity for leverage as loans and/or leases.
Flexibility and Responsiveness
Traditional lenders are often regulated by government agencies and have specific limitations on what types and amounts of loans are permissible. These restrictions prevent such lenders from dealing with anything other than standard financing situations.
On the other hand, private, nontraditional lenders set their own criteria for lending and have the freedom to assume greater risks. Likewise, these lenders structure their financing in a number of ways, customized to meet specific borrower needs. Instead of a loan that must be used for limited purposes and paid in a structured way, it is possible to find financing for:
- Loans with variable terms
- Cash advances
- Credit lines
- Secured and unsecured loans
In addition to the original form of the loan, this form of financing will often offer variable ways to repay any debt incurred. This can be in the form of a percentage of monthly revenue, payments on different schedules, and hybrid forms of payment. Such flexibility allows a company to match its ability to service debt with its operating income.
General Requirements for Lending
Within this flexible framework, those companies making bad credit loans look to companies with a minimum of demonstrable operating revenues, generally at least $10,000 per month. Even with bad or no credit, a business can begin a relationship with such a lender and expand its access to capital as it grows.
The key to success for many small businesses is a creative approach to financing. Even without a significant bank balance or assets, turning to a bad credit lender is often a practical way to achieve the funding needed.
Not only is access to this source of financing an important tool, the fact that repayment is structured around actual revenue makes the repayment manageable.