A high-risk business loan is extended to a business with poor or bad credit, if you are unable to supply the required collateral, or if you have an unclear idea about how to repay. It’s not impossible to avail a business loan in spite of poor credit; chances are traditional banks will not qualify your business for a loan.
Your business loan could be termed as high risk also because your business is unusual, unconventional and the industry is labeled as high risk, high return’. Some of the high-risk industries are restaurants, construction companies, many seasonal and cyclical businesses. Most new and young companies are also considered high risk as they have not yet proven their sustainability.
You are eligible to apply for a high-risk business loan if – despite bad credit and regardless of profit or loss, your company has shown consistent revenue.
It is always good to know the following points as an entrepreneur:
If your business loan is approved, chances are the interest rates will be on the higher side. The lender does this so that he can minimize his risk.
Non-banks are the lenders who will give you a high-risk business loan, as conventional lenders prefer not to venture into non-traditional lending. Some of them base their approvals on a number of sales generated by your business as opposed to looking only into the FICO score.
Look for lenders offering revenue based repayment process thereby allowing larger payments during high sales time and lower payments during slow sales time.
Rebuilding your credit score is one of the best things that you can do to take your business to the next level.
Online lenders are the current rage in high risk business loans segment. Their eligibility criteria is sparse. Look out for hidden clause and fees in the loan agreement.
High risk businesses usually get slotted for a short term loan at a higher rate. A short term loan can help solidify your business’s finances, regardless of your credit score.
Some non traditional lenders offer merchant cash advances instead of business loans. As opposed to making monthly repayments for a business loan, a percentage of your sales is repaid each month towards the cash advance. There is no interest rates for merchant cash advance loans. A factor rate is used by many lenders instead.
There is a large network of lenders who are willing to offer business loans to high risk businesses, just keep in mind the above points before choosing one.