The perils and pitfalls of getting a loan…& growing your business
Being in business in today’s environment is difficult, especially the last few years. Money very tight, most businesses credit scores are at an all-time low.
High usage of credit cards because they can’t get a loan.
Business depending on what you do is way off thanks to a very weak market and demand as the consumer has limited funds themselves to purchase any extras over the last few years.
I have noticed a trend in lending the last year in particular where we see a small uptick to merchants looking for larger cash loans, the downside is what they have to pay for it…ouch
First problem is getting a loan. Banks only approve about 10% of loans, general industry with alternative is around 40-60% approvals and have limited industries they serve.
Second problem is most of the sub-prime (alternative market lenders) have run into trouble themselves. Can Capital, OnDeck, Bizfi and others went out of business, came back with investor cash injections, or someone buys the portfolio and services the debt. Problem is now they have all tightened up credit requirements, shortened the term cycle, and raised rates.
Third problem is the cash flow on paybacks to the loans. Almost all require daily or weekly ACH debits from your bank accounts, and terms are from 3 months to usually around 14 months tops and very high interest or factoring rates. Factoring rates range from 1.09 to as high as 1.49-you multiple the factor rate times your loan amount to get your payment.
This really disrupts the small merchant cash flow and they struggle to balance money to make sure they don’t miss a payment every day!
Fourth problem, most of the loans are brokered by another broker. So, you get many layers of fees, delays, lost paperwork, etc.
Fifth problem, when you apply to as an example an OnDeck, it is a single source supplier. If they turn you down then you have to start all over again. This really affects your credit score every time you apply.
NOW for my pitch (sorry you knew it was coming) but I think you will like it.
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