Sooner or later your small business will need to borrow money. That’s just a fact of business life. It doesn’t matter what type of business you own. Or how popular it is. The good news is that small business owners have many borrowing options today. The bad news is it can be tough to get business funding if you have bad credit. Unless you choose a merchant cash advance, or MCA.
Bad credit isn’t necessarily a sign of bad business. Good credit can go bad for any number of reasons. A business slump. Slow-paying customers. Or insurance companies. Sometimes bad credit comes from things beyond your control. Anyone who made it through the recent Great Recession knows that. It’s easy to fall behind when your cash flow is inadequate or irregular. Or maybe you just need some help managing your cash flow more effectively.
Your small business can also get into credit trouble if you take on too much debt. That said, we’re back to my original point. Sometimes you simply have to borrow to operate your business. Merchant cash advance can help. And you can get an MCA despite your bad credit.
WHAT IS A MERCHANT CASH ADVANCE?
Like all small business loans, an MCA is a money management tool. Before you reach out for a merchant cash advance, you need to understand how it works. And you need to carefully consider the pros and cons.
Merchant cash advances are not based on your business credit. Your business qualifies as long as you do a predictable amount of credit or debit card sales. The more credit card business you do, the larger the cash advance may be. You do not have to consciously make payments. Instead, you agree to have a fixed percentage automatically withdrawn from future credit card transactions. The money goes straight to your merchant lender.
You can choose to have withdrawals made daily, weekly, etc. to fit your typical operations pattern. The beauty of this is that payments are always affordable. That said, I have a warning for you. This type of repayment is “easy” only if it doesn’t reduce your cash flow too much. You don’t want to put your other bills in jeopardy.
KNOW YOUR CREDIT SCORE
Bad credit is worse than frustrating and embarrassing. It stifles your ability to make a profit. And grow your business. That’s why every small business owner needs to have an accurate picture of your business credit status. And you need to monitor it regularly. Otherwise, you won’t know if there is a problem. Or if your credit score is slipping.
WHY BUSINESS CREDIT IS CRITICAL
The better your business credit, the easier it is to obtain small business loans. And the lower the interest rate you’ll pay. Lenders don’t like risk. They want to feel sure you can – and will – repay your business loan. If you look too risky to them, they will turn you down. Or tack on requirements such as collateral or a personal guarantee. If you can’t meet those requirements, you’re out of luck. Bad credit will stifle your business.
That said, you can get some small business loans, even with bad credit. Merchant loans for bad credit are a good example. Yes, you’ll pay more to borrow the money. But you’ll have the money, and quickly. You can put it to get back on track. Or pay your bills on time. Or reduce your debt.
The better your business credit, the better terms you can get from suppliers, too. This is called trade credit. If your business credit is very bad, vendors will require you to pay cash up front. Or you will have to pay within 30 days. This can put a terrible strain on your cash flow. But if suppliers see you a good credit rating, they are more willing to also extend you credit themselves. They will give you 60 or even 90 days to pay. That improves your cash flow situation, so you can stay current with other bills. Or purchase more inventory.
The bottom line is that good business credit opens doors for your enterprise to grow and thrive. You can borrow money more easily. And save money on the terms. And protect your working capital. With that, you will be able to transform your future vision into a reality.
HOW TO REPAIR YOUR BAD CREDIT
Priyanka Prakash at Fit Small Business says, “The best way to build business credit is to borrow money and pay it back in a timely manner.” Merchant cash advance gives your business a way to borrow, even with bad credit. And, compared to most small business loans, it is easy to repay on time.
Credit reporting giant Experian says, “The quickest way to begin to improve bad credit is to pay your debts. Decreasing the balance on your business credit cards can have an immediate impact on your businesses’ credit rating.” That’s because it reduces your debt ratio. Clearing balances also increases the amount of credit available should you need it. Do this for your business line of credit as well as cards.
Make every effort to pay your bills on time. If it’s easier, pay some weekly rather than waiting till the end of the month.
Separate your business and personal credit. If you keep shoring up your business with personal borrowing, your business will never develop its own good credit.
Ask your vendors to report your good payment history to key business credit reporting bureaus. That will help boost your score.
COULD MERCHANT CASH ADVANCES HELP YOU NOW?
The best way to find out if a cash advance is your best business borrowing option right now is to call us here at United Capital Source. We’ll answer any questions you might have about MCA versus alternatives. And we’ll give you the straight scoop. Our people are highly, and we know hundreds of lenders. But we are entirely independent. Our #1 goal is to help you find the right small business loans. With the right financing, you can move past bad credit and on to growing your business.