Even though there is a treasure trove of information about debt financing online, countless business leaders are still hesitant to pursue small business loans. A number of factors are to blame, and at least one of them doesn’t look like it’s going to go away anytime soon. In fact, some would argue this particular factor has only worsened as of late, despite the rapid growth of the business lending industry and the increased accessibility of various business funding programs. There’s no way around it: If you are a small business owner with a budget, the journey to obtaining the right small business loan for you is unnecessarily complicated. The risk of misunderstanding or unintentionally ignoring crucial information is so high that business leaders don’t bother trying to educate themselves.
These business leaders would be pleased, however, to learn that companies like United Capital Source are fully aware of just how confusing their industry is. This is why one of our primary goals is being completely transparent, rather than steering potential borrowers in the wrong direction solely to draw a quick profit.
Here are three things that make the business lending industry so complicated:
You may have heard that every business lender is different. This refers to both requirements and repayment systems. While two business lenders might offer similar business funding programs, the requirements and repayment systems for each business lender’s selection could be wildly different. One business lender’s program might require a minimum personal credit score, while the other won’t even check your personal credit at all. One business lender’s program might be technically classified as a “loan” and show up as “debt” on your balance sheet, while the other’s would not, making it easier to take on other forms of debt at the same time. One business lender might not care how you use the money while another might only approve of certain types of investments.
Certain programs, like a merchant cash advance or business line of credit, are especially prone to these little differences between business lenders. For example, the traditional merchant cash advance has no set due date or minimum monthly payment. Numerous business lenders offer similar programs that appear to be just like a traditional merchant cash advance, but you have to pay back a specific amount by a specific time. With a business line of credit, paying off the debt in full usually allows you continue to draw from your credit line. But some business lenders give you that second round if you pay off as little as half of your original amount within a certain time frame. Almost every business lender has their own stipulations, and you probably won’t hear about them unless you ask.
A business lender might not admit that they discriminate against certain industries but the truth is, an applicant’s industry could make him or her significantly more likely to be approved or rejected. This is just one more thing potential applicants must factor into their decision of whether or not to apply. Imagine finding a business lender that seems perfect for your needs only to find out that your industry is not among the kind of businesses that are most likely to be approved by that business lender. Should you try to find another business lender that specializes in your industry, or just go with one that has a more diverse list of clientele?
At United Capital Source, we have made it our personal mission to erase the notion that certain industries are too risky or young to deserve the same, affordable small business loans as other businesses. As long as you can prove that your business has been alive and kicking for at least six months, we will likely find no reason not to work with you.
The amount of business funding programs available today dwarfs the selections of generations past. These new programs were created primarily to increase accessibility. But they have also made it much more difficult to be sure that you have found the right program. There’s so many different variations of each one, and some are available to people who use certain credit cards or payment systems. After establishing you are going to use accounts receivable factoring, you have to find the right variation of accounts receivable factoring, just like the aforementioned examples with a merchant cash advance or business line of credit.
The solution is to find a business lender that is willing to share non-biased information about all of your viable options. This includes business credit cards, bootstrapping, etc. Such business lenders have no problem making suggestions that don’t involve their own products. If banks did this, they likely would not have approved business loans for so many people who failed to pay them back on time.
Arguably the worst outcome of all this confusion is that it overshadows certain things that apply to all potential borrowers. One of them is the necessity to improve cash flow in any way you can before applying for any sort of business loan. A great deal of potential borrowers are likely so occupied with finding the right program or business lender that they neglect their business’s financial standing. So, while the business lending industry might always be somewhat complicated, rest assured that businesses with strong cash flow will always be more eligible for the perfect business loans for their needs.
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