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Finding bad credit business loans may seem like impossibility as a business owner, given the restricted credit environment that we currently find ourselves in. The best option for any business owner is always going to be a loan backed by the Small Business Administration and funded through an SBA approved bank. The reason for this is that these loans usually have the most advantageous interest rates & terms. However, the majority of business owners will not qualify for this type of loan due to the restrictive underwriting requirements.Below are three options a business owner needs to consider if they hope to get business working capital in the current environment, especially if the business or personal credit has taken some hits due to the recession.1.)If You Own Commercial Real Estate – If you own the building or property that your business resides in and you have a good amount of equity, you may have a real option here that is comparatively affordable. The key thing to look at is how much you believe the property may be worth, how much you owe on it, and how much you are looking for in a loan. The advantages with this option are that even with bad credit, the rates will likely be the best of any option because you are securing the loan with real estate. Most commercial property lenders will go to 70% of the appraised value of the property, minus the amount you owe as a loan amount.The downside here is that that processing time may take upwards of 90-120 days and the property will have to be appraised. Usually this appraisal fee is a hefty, low 4 figure expense that comes out of pocket with no guarantee that the value needed will be the one the appraiser actually comes up with. So keep in mind that while this may be the most affordable option if your credit is difficult, it may also take the longest, and you may end up empty handed if the appraisal comes in low.2.) If You Have a lot of Equipment – Businesses that are equipment intensive such as restaurants, construction companies, etc may have an option for a secured equipment loan. This is a loan, usually in 3, 5, 7 or 10 year term with a balloon payment that is secured against the appraised value of the equipment that your business possesses to operate. Keep in mind you have to own the equipment outright, and not have being leased or financed to you currently. Minimum loan amount for a loan of this type is usually a $100,000, though you may find some lenders or brokers who will work with a slightly smaller amount. The rates are fairly reasonable for difficult credit situations because the loan is secured, but it may take 30 days or longer to get the funds and the equipment in question will need to be appraised.3.) If Your Business Accepts Credit Cards – This option, known as a merchant cash advance, is the quickest of the three, meaning these loans can put funds in your hands in a matter of days or weeks. These loans, technically called “advances” usually come from credit card processing companies, or merchant cash advance companies. While they can get the cash quick, they also charge exorbitant rates as high as 50% with large upfront fees and may come with a requirement to buy new swipe equipment and switch credit card processing services. This unregulated “advance” is usually predicated off of businesses’ credit card receivables.Credit Card Receivable Financing – This is a new player for bad credit business loan and is similar to a merchant cash advance, with low documentation and quick funding, but with interest rates that are 50-80% less than a traditional merchant cash advance. Additionally, these are true regulated business loans that carry no upfront fees or requirement to switch processors or buy new swipe equipment. As of this writing, they can handle owner credit scores down to 550 and a loan amount as high as $500,000. According to my source, they can usually get a zero cost pre-approval in 48 hours and fund the loan in 7-10 days.

The small business loans category in today’s marketplace has expanded in order to meet the needs of twenty-first century entrepreneurs. Innovative technologies are all but necessitating a changing of the guard, so to speak, in terms of how wares are bought and sold through a variety of mediums. Although the way business is being done these days carries with it a variety of nuances, many mortgage lenders are still using the same old formula to qualify their prospective borrowers. Whether seeking a construction loan or looking to enhance business operations or both, the requirements for getting approved on a variety of small business loans are relatively consistent across the board.Loan applicants may want to find out as much as they possibly can before delving into the multi-faceted world of business, such as how mortgage rates today will play a role in the here and now, but down the road as well. Commercial loan rates, for example, are often a few percentage points higher than home loan rates, as well as the duration of each loan in question.While much of this information can easily be found elsewhere online, contacting a reputable broker and having a real-time conversation may help to clear up any confusion, yet it’s also a great way to find out exactly what is needed to apply for one or more small business loans. Finding a trusted broker is often one of the most important steps of the borrowing landscape as the screening process moves forward.Also known as liaisons to a variety of mortgage lenders, brokers are the ones who will be able to shop the loan requests around to see how they stack up by comparison. Before doing so, a number of puzzle pieces should already be in place, such as documented financial information: personal and business finances over the last three years, tax returns, and a respectable credit history as well. Small business loans are also approved or denied based on the viability of each proposed business model, meaning that a water-tight or virtual recession proof modus operandi may increase the chances of getting the green light.The above requirements will be part of a business portfolio that should also include the amount of the loan and a few industry-related projections accordingly. Depending on the type of commerce entailed, demographics may play an important role as well.A retail-based construction loan application, for example, will require specific data concerning targeted area populations and age groups, foot traffic, median incomes, projected costs, and expected turnaround times. When it comes to small business loans, a well-laid-out plan stands a greater chance of coming to fruition.With standard mortgage rates today remaining competitive, the amount of the initial down payment can also lower commercial loan rates significantly. While the same principle applies to a number of individual home loan rates, the savings on a commercial level can make a sizable difference.It’s also important to note that putting a larger sum of money down often signifies the type of drive and determination many mortgage lenders like to see in their prospective clients. Small business loans such as these are likely to become profitable over shorter periods of time; as the commercial loan contract eventually reaches maturity, other financial incentives are likely to appear.Covering all of the bases can never be overstated when applying for a construction loan, or any other start-up business that requires additional capital. When executed methodically and properly while planning ahead for possible snags, the hard work waiting in the foreground may become less of a burden. While finding the lowest commercial loan rates possible may be a key factor, getting established may be the most important thing of all. The small business loans model of today is designed to help loan applicants reach their intended goals.

Before lenders will grant a small business loan, they want to be sure that the loan will be repaid. Every loan is a risk, but banks and brokers want to take as little risk as possible. They look for businesses that show promise, and they award loans to businesses that have solid personal and business backgrounds and are committed to the success of their businesses.What are the first things the lender will look at? The following are the five basic items that all lenders look at before they will approve your business loan:1. Credit history One of the primary factors lenders look at is the condition of your personal and business credit. This is generally reflected in your credit score that is obtained from the three credit reporting agencies. Your personal credit score is associated with your Social Security number, but business credit reports are tied to your tax ID number. Before you even start shopping for a loan, request a copy of your credit report from all three major reporting agencies: Equifax, Experian, and TransUnion. Review it carefully and correct any mistakes before you start the application process.2. Your investment Business loan applicants should have a reasonable amount of their own money invested in their business. Lenders want to know that you will be motivated to work hard to make your business a success. When they see that you have invested a substantial amount of your own money in your venture, they will assume that you will work hard to make it a success. The amount of your required investment may vary, but it should be at least 20% of the amount you need for the business venture.3. Working capital Working capital consists of your current assets minus your current liabilities. Working capital can also be thought of as cash on hand or what is available to pay current debts and keep your business running. A lack of adequate working capital increases the risk that your business will fail and makes lenders much less likely to approve your loan.4. Ability to repay Banks want to see two sources of repayment: cash flow from your business and a secondary source which is typically collateral. Lenders will look at your past and projected financial statements. They will want to see your personal financial statements, personal tax returns for the past two-three years, business financial statements for the past three years or for three projected years, and accounts receivables and payable aging. If your business has consistently made a profit or you can reasonably project a profit, you are more likely to get approved. If your business has not been consistently profitable, you can increase your chances of getting a loan by including detailed information of new opportunities, new contracts, or other information showing that your company’s future will be profitable.Most lenders require collateral to secure the loan. Collateral is required for all SBA loans. Collateral can be business assets and personal assets. If you plan to purchase equipment and other assets with borrowed funds, these assets will be used as collateral for the loan. Lenders will also require you to personally guarantee the loan.5. Experience and character Lenders will expect you to have experience in the type of business that you plan to run. If you do not have that experience, lenders will expect you to hire people who have experience. Even if you do not have experience in this type of business, you should at least be able to show experience in other businesses and managerial experience.What documents will lenders require? In order to expedite the process, the following four documents should be available for the lender to review:1. Business plan A business plan is particularly important for new businesses, as they lack a track record for lenders to review. Your plan should convey all important facts about your business in a concise manner. A professional business plan will be at least 20 pages long, plus financial projections. The business plan will include:Balance sheets, Profit and loss statements, and Cash flow projectionsfrom the last three years or for three years’ projections.Accounts receivable and payables agingbreaking your receivables and payables into 30, 60, and 90-day categories.Market data showing demand for your type of businessResearch on competitors including their customer base and price points2. Loan request This can be included with the business plan and should detail the amount of money requested, how the loan funds will be used, the type of loan, the amount of working capital you have, the collateral that will secure the loan, the personal guarantees of the loan, and how the loan will be repaid.3. Personal financial statements You will need to provide personal financial statements for anyone who owns 20 percent or more of the business. The financial statements must include a complete schedule of assets, debts with balances due, payment schedules, maturity dates, and collateral used to secure other loans.4. Other documents Lenders may also require articles of incorporation, taxpayer ID number, legal descriptions of real property, leases, equipment inventories with serial numbers, proof of insurance for collateralized items, and letters of intent showing that commercial accounts intend to do business with you.What is the loan process? Some lenders like to prequalify potential borrowers to determine how much they can afford. This also gives you and your lender an opportunity to see which loan program would be most appropriate for your needs. After the lender gathers basic information and your application is received, a loan officer or processor will review your credit reports, the amount of available collateral, and your income.The loan officer will determine if any additional documentation is required. If you are purchasing real estate, you may also need to submit preliminary environmental reports, area maps, title reports, property appraisals, and lease summaries. Next, your commercial loan package is submitted to the decision makers — either a loan committee or underwriter. During the underwriting process, you may need to furnish additional documentation.After the underwriting process, you will receive a letter of intent or term sheet. A letter of intent or term sheet is a formal document intended to put all parties (the lender and your company) on the same page. The letter of intent will include the names of all parties, amount of financing, type of collateral, and other key terms. After all underwriting conditions are satisfied, the final loan package is resubmitted to the loan committee for final approval.At this point, the lender will issue a final full loan commitment. If your loan is approved, you will receive closing documents and they may be handled by a title company. The title company will record deeds and mortgages, order title insurance, coordinate the exchange of funds, and arrange for you to sign the loan documents. At the closing, the lender funds the loan with a cashier’s check, draft, or electronic wire transfer.Being prepared and organized can save time and help your loan get approved. Be prepared to have all required information ready to submit if your lender requests it.Jo Ann Joy, Esq., MBA, CEO
The future of your business starts here!You may contact Jo Ann by phone at (602) 663-7007, by fax at (602) 324-7582, by email at jo[email protected] Business Solutions.net, and by mail at 2313 East Ocotillo Rd., Phoenix, AZ 85016. I have many published articles, and I will send any article to you free of charge. Most consultations are free.