Benefits & Perks

From NerdWallet: 5 Small Business Financing Hurdles To Conquer

Faced with a small business financing hurdle? NerdWallet has some expert solutions.

Blog Author - Cindy Yang
Cindy Yang
Nov 30, 20153 minutes
Blog Author - Cindy Yang
Cindy Yang
2 postsAuthor's posts
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NerdWallet is a source for information, insight, and consumer-driven advice about personal finance. It also connects you with experts and financial comparison tools to help you grow your small business.

The more challenges your small business can overcome, the stronger it will be. The next time you’re faced with a small business financing hurdle, consider these expert solutions.

Financial Hurdles To Conquer

Hurdle: Deciding whether to put your personal credit at risk

Solution: Understand the possible consequences when you mix finances

Since new entrepreneurs typically don’t have business assets to use as collateral, lenders usually consider them risky. With no collateral or business credit, you can’t get small business loans without making personal guarantees, says Jeff Haydock, president and CEO of ecoCFO, which provides financial advice to energy and environmental companies.

personal guarantee is similar to co-signing a loan — you agree to pay the debts of your business if your company can’t. If your business can’t pay its debts, that can hurt your personal finances and credit. If you fall behind on payments or default on a business debt, you could be sued and a creditor could seize your personal assets. You may also be forced to declare both business and personal bankruptcies.

Hurdle: Having a bad credit score or no credit score

Solution: Start taking steps now to repair or build your credit

Without business credit, you’ll have to rely on your personal credit to get a loan. If your personal credit is tarnished, start repairing it now.

“I don’t think anybody goes through life without a little ding here and there,” says Barbara Griffith, president and founder of Southern California Leasing. “It’s still repairable.”

How to Improve Your Personal Credit

Here are a few things you can do to get your personal credit in better shape:

  • Address any inaccuracies or outdated information on your credit report.

  • Begin paying down other debts, taking care of higher-interest balances first.

  • Don’t apply for multiple lines of credit or loans at the same time.

  • If you have no credit or bad credit, consider applying for a secured credit card or find a co-signer.

Once your personal credit improves, try to secure a business loan with a lender that reports to the three major business credit reporting bureaus — Dun & Bradstreet, Experian and Equifax. As you make on-time payments, your business credit rating will rise, which can mean better terms and rates on loans and business credit cards.

How to Find the Right Lender

Hurdle: Finding the right lender

Solution: Seek lenders that understand your industry

Work with a lender who understands your business to improve the likelihood of getting a loan, Haydock says.

“If they don’t understand your business, then they don’t understand the risks or what your growth trajectory should look like,” he says.

Industry-specific lenders are more likely to be attuned to your business needs. For example, Live Oak Bank provides industry-focused lending for businesses that specialize in fields such as insurance, veterinary medicine, hotels, agriculture and health.

What to Do If You Have Bad Credit

If you’re seeking a loan for something specific, such as equipment, niche lenders can cater to that need. “It’s easier to get the right kind of loan on a piece of equipment as opposed to going to a traditional bank for a loan,” Haydock says.

Hurdle: Being rejected by a traditional lender

Solution: Consider alternative options

Even if you have a shaky personal credit history, there are lenders that provide small-business loans for bad credit. But if a traditional lender rejects you or you want to try something different, look at alternative lenders, says Russell Walraven, vice president of direct account acquisition marketing at Marlin Business Services, which specializes in alternative lending options for small businesses.

“Traditional ways are not the easiest, most efficient or most available ways for small business owners to get funding,” Walraven says. He suggests comparison-shopping according to the kind of financing you need, as well as the interest rates that are available based on your company’s qualifications.

Start by comparing different online lenders, peer-to-peer lenders and microfunding. If you still can’t get approved for an alternative loan, a merchant cash advance might be a last resort. They’re easy to obtain if you offer credit card sales, but will cost more in the long run via a high annual percentage rate and no benefits for early repayment.

Dealing with the Risk of Debt

Hurdle: Risk of taking on too much debt

Solution: Be conservative with your business plan

A clear-cut business plan can help you avoid a debt trap, Griffith says. Make sure your plan allocates money conservatively, manages cash flow, includes a sensible revenue projection, and allows for unforeseen expenses. Ask the right financial questions for your small business, and get educated on your options.

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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.
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Written By
Blog Author - Cindy Yang
Cindy Yang
Nov 30, 20153 minutes

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