Lack of financing is a top cause of failure for many entrepreneurs in the small business ecosystem. Most of them lack solid business credit and enough cash flow to win lender confidence. That creates hurdles when accessing expansion capital from traditional lenders.
However, fintech times have changed with the rise of online lenders who are more likely to welcome small business owners with fair to no credit history.
Some online lenders even offer ITIN loans to small business owners. Such ITIN loans are meant for minority business owners, especially immigrants who don’t have a social security number (SSN).
Aspects you need to know to get the funding you need
You should consider several factors before applying for a business loan to ensure that you get the money you need at favorable terms. The top ones include:
Before taking out a small business loan, you should first figure out the total loan costs. That includes fees, total interest, monthly installments, payment terms, and more.
That will enable you to figure out whether your monthly revenues are enough to service the loan. You’ll also be able to determine upfront whether the loan has an excellent ROI to help your business grow.
Reputable lenders include a loan calculator on their websites to help you nail your loan costs before you jump.
Your business credit score will determine the type of lender you choose and the terms at which you’ll be approved. If you’ve got an excellent credit score, you stand a chance to qualify for a loan at the best terms from traditional lenders.
But if your score dips below 680, banks may turn you away or hit you with unfavorable terms. You may have to consider working with alternative lenders who welcome borrowers with fair to good credit scores.
How long have you been in business? Is your company already profitable? Do you have enough cash flow?
These are essential things lenders will consider before trusting you with their money. Lenders, especially banks, require you to demonstrate profitability, outstanding revenues, and at least 2-3 years in business.
However, online lenders welcome small business owners who have been into business for a year or even months.
It’s vital that you know how much you need to borrow and whether you can qualify for the amount you’re seeking. That will be determined by your credit limit and your lender’s ability to advance the amount to you.
Most lenders perform a soft credit pull for a quick pre-qualification process to help you determine the amount you qualify for, repayment terms, and more.
So make sure you get pre-qualified. If a lender does offer what you’re looking for, keep searching.
Some lenders, especially traditional ones, may entangle you with a lengthy, paper-laden application process where you’ll be required to fill out and submit excessive paperwork for the underwriting process.
You need to work with a lender with a quick and straightforward online application process.
How quickly do you need the funds? Are you willing to wait weeks to months to hear from your lender, or do you want to get approved within a short period? That will determine the type of lender you choose.
Need for collateral
Some lenders require you to secure the loan with personal or business assets. If you default, they’ll sell your assets to recover their money. Others may not need you to attach any support as a lien for the loan but may hit you with a higher APR to compensate for the risk.
Traditional options to get financing for your business
When seeking expansion capital, one top option you have is funding from conventional lenders. This option is good for you with an excellent credit score, substantial business revenues, and a long trading history.
If you meet those conditions, you may qualify for a business loan from a traditional lender at the lowest rate that you can find elsewhere.
Top traditional lenders to look into include:
- Banks and credit unions: Rates may come in between 58% to 7.16% based on your credit profile and FICO score.
- SBA loans: These are loans offered by the Small Business Administration. APRs may range from 5.50% to 8%.
Online lenders that can help you with your financing
Traditional lenders have strict requirements that tend to be outside the reach of many small business owners. That’s where online lenders come in to help save the day.
Unlike banks, fintech lenders have minimum requirements and are more likely to welcome borrowers with bad to fair credit and those with no credit history.
Again, they offer an easy application process, transparent loan terms, quick pre-approval, and faster funding.
- Online term loans: APRs range from 9%-99% based on your overall credit profile
Other funding sources you can consider
If the above funding options don’t work for you, you can consider other funding sources, including:
You can use your personal or business profits to bootstrap your business growth. The downside is that the growth process is slow, and you may end up missing growth opportunities.
You can use a personal loan to inject extra cash into your business. However, personal loans come with low loan limits, and you may not raise enough expansion capital. Again, you end up mixing your personal and business revenue, which isn’t a good practice.
Finally, you may struggle to get funding from traditional and online lenders if you are a minority business owner without proper identification documents. That’s the case with immigrant entrepreneurs who lack a Social Security Number (SSN).
That’s where ITIN loans can help you secure capital to expand your business. They are loans meant for minority business owners who don’t have SSN and only a few fintech lenders like Camino Financial offers.
Visit the link in the intro to learn more about ITIN loans and how they can help you access funding for your growing business.