Retailers and business owners searching for bad credit small business loans often must contend with a confusing array of choices as they try and navigate the stormy waters of non-traditional commercial financing. While traditional sources for merchant capital have dried up, many other providers have cropped up to take their place..
The Bad – Hard money loans are available to those businesses that need larger amounts and have real-estate to offer as security. The downside is that the rates and fees on these types of loans can be very high, and they require that the property have significant equity available. Given today’s real estate market, this is a lot harder to achieve than it once was, as many properties have lost upwards of 30{5b0579ddad123e8826b0f99aaf2548fba6b6d6310808b95d99d67897c25a7935} of their value in the last three years.
The Ugly – With the downturn, merchant cash advance companies, also known as ISO’s or independent sales organizations, have proliferated, taking advantage of the business credit deterioration by offering “cash advances” through their respective credit card processors. These advances are fairly quick to fund, usually in 7 days, regardless of credit quality. However, they often come with onerous interest (factor) rates as high as 50{5b0579ddad123e8826b0f99aaf2548fba6b6d6310808b95d99d67897c25a7935} with large upfront fees and the requirement that the business switch credit card processors and/or purchase new equipment. The strategy is to offer the unregulated “advance” against future credit card receipts in order to force merchants to switch their processing services and purchase new swipe equipment.
The Good – The best source of capital for a merchant that is not under severe time constraints and owns their property is a commercial mortgage. If you have equity, you still should qualify for a decent rate that will be hard to find elsewhere. The downside is that this not available to many retailers, and the time line to funding may be as long as 90 days. However, if this is not an issue, it should definitely be considered as a prime choice.
If you are a retailer that accepts credit cards and has been in business for one year, a credit card receivable loan is a good option, especially if your business credit has taken some hits. These regulated business loans feature rates 50{5b0579ddad123e8826b0f99aaf2548fba6b6d6310808b95d99d67897c25a7935} lower rates on average than their competition, the merchant cash advance, without any upfront fees or requirements to switch processors. Typically they are low documentation and can fund in less than two weeks.
Merchants everywhere may feel like they are in their own spaghetti western as they try to navigate the ‘wild west’ playing field for bad credit small business loans. The key is to ask the right questions, stay informed and persistent, and understand the terms of the loan you accept before signing on.
