Published By Janet Gershen-Siegel at October 26, 2017
It’s true! Poor credit is a challenge. There’s no refuting that. But it is not an unconquerable one. You can get credit for your business even when your credit score is terrible. You can get a business loan based on your strengths. And yes, you have them!
One means to get business loans is by offering a personal guarantee. This personal guarantee can come from you. But it can also come from an investor.
So if a family member wants to have a portion of your new business, why not offer a portion for them supplying a personal guarantee to a lender or credit issuer? This could be your semi-rich uncle, for instance.
Personal guarantees do come with a degree of risk. If your business does not take off, then your investor might be left holding the bag if you do not pay loans etc. That’s why, asking someone to furnish a personal guarantee for you is not something that either of you should take lightly.
Without a personal guarantee, some loan providers will take out a UCC blanket lien on your small business. A UCC blanket lien serves as a notice which will go on your credit report. It indicates that the loan provider has a financial stake in all your business’s assets up until you pay off the loan fully.
Thus, there may be unfortunate consequences if you must default. Plus, for really bad credit risks, your loan provider might demand both a UCC blanket lien and a personal guarantee.
Cash flow financing is another great loan program for anyone, if you’ve been in business one year or more and have $10,000 in monthly revenue.
Unsecured financing is available for business owners, up to $150,000. You can get approved if you have good personal credit, and get 0% introductory rates for 6-18 months. So this is even as a startup.
A superior alternative is unsecured credit. Unsecured just means you are getting credit without putting down any money. In contrast, with secured credit, you put down a certain sum and can only borrow as much as that sum.
So, how do you get unsecured credit? You get it by putting up collateral for your loan. Don’t believe you’ve got enough for collateral? Reconsider. You may have any range of assets which can be used as collateral for a business loan.
Collateral-based financing offers low rate financing. Personal credit quality and profits do not determine your approval. Some acceptable collateral includes:
The concept behind collateral-based financing is that a lending institution needs a guarantee. For the lender, a great guarantee that you will repay financing is when your property is at risk if you do not.
Your business might also have resources which you could draw upon as collateral. Company assets can include land holdings. Does your business own land, or a building, or a portion of a building? You can use this real estate as collateral.
It can also mean equipment, if you own it free and clear, although this has to be significant equipment. You won’t have the ability to combine a bunch of smaller equipment. This is referred to as an equipment sale leaseback. So you are in essence selling your equipment to the lender. And then you are renting it back from them for the cost of your loan payments.
How about business inventory? You can use inventory valued at $500,000 or more and use it for a line of credit worth 50% of your inventory’s value. So this is for what’s referred to as inventory financing. Or if you have more like $300,000 worth of inventory, you can get an inventory loan for $150,000. So that is, the loan to value, also known as the cost, is 50%.
You can also use your anticipated profits as collateral. Let’s say your business has due invoices out to your customers. You may have offered liberal repayment terms in order to sweeten a deal and get the sale.
Or possibly your client is just plain tardy paying you back. With accounts receivable factoring, you can get up to 80% of your owed receivables. But you can’t get such a loan 100% of the time. The truth is, your company will have to have been in business for a year. And that is at the very least. And the receivables must be with another company. So this is not with an individual.
You may have a retirement fund, like a 401 (k). Or your semi-rich relative might give you (or will to you) stocks or bonds. You might own your own dwelling. You can use all of these assets as collateral for unsecured credit, whether that’s in the form of an unsecured business loan or a credit card.
The SBA offers some great loan programs including their 7(a) loan for working capital. In order to be approved you’ll need:
The SBA Express program is a wonderful loan program for anyone. You can get an approval for a loan of as much as $350,000. Get rates of 4.5-6.5%. You can get a line of credit good for 7 years. No collateral is necessary for up to $25,000. There is a turnaround in 36 hours.
If you have decent personal credit and income tax returns for two years that show a profit, alternative lenders have programs that might work. You could be approved with rates of 7% or lower. Lenders will need to see some type of profit on your tax returns.
Are you a veteran? Then you have even more options!
The Office of Veterans Business Development furnishes a number of programs and services to support and empower aspiring and existing veteran business owners and military spouses.
The SBA furnishes training and coaching, easy access to capital, preparation for opportunities in federal procurement, and development of connections within commercial supply chains and disaster relief assistance.
Boots to Business is the 2-step entrepreneurial program provided by the SBA on military installations around the world as a training track of the Department of Defense (DOD) Transition Assistance Program (TAP).
Boots to Business|Reboot extends the entrepreneurship training offered in TAP on military installations to veterans of all time periods in their communities.
For women who are also veterans, the Veterans Women Igniting the Spirit of Entrepreneurship (V-WISE) is an SBA funded program. It is on offer from the Institute for Veterans and Military Families which includes online training, a conference that uses the one of a kind camaraderie of women veterans and female military spouses.
And it adds follow-on mentoring through a community of partners.
The National Center for Veterans Institute for Procurement extends the entrepreneurship training offered in TAP on military installations to veterans of all periods in their communities.
The Veterans Business Outreach Center (VBOC) supplies entrepreneurial development services which include business training, counseling and mentoring for qualified veterans operating or considering starting a small business.
The Leveraging Information and Networks to Access Capital (LINC), an online matchmaking service, connects small business owners to nonprofit lenders which furnish free of charge financial advice and focus on microlending, smaller loans (SBA Community Advantage program), and real property financing (SBA 504 loan program).
SBA Veterans Advantage guarantees loans approved to businesses owned by veterans or military spouses.
The Veterans Entrepreneurship Act of 2015 reduces the upfront borrower charge to zero dollars for eligible veterans and military spouses for SBA Express loans up to $350,000.
The Military Reservist Economic Injury Disaster Loan Program (MREIDL) delivers loans up to $2 million to qualified small businesses. So this is to address operating costs that cannot be met due to the loss of an essential worker called to active duty in the Reserves or National Guard. This one comes straight from government benefits.
So think of what you and your company possess, or are expecting to possess in the soon. You just may have enough collateral for an unsecured business line of credit. And that’s even if your personal credit is rotten.