Many Small Business Owners Turn To Banks for Their Lending Needs
Banks operate in such a way as to generate revenue off of either outstanding loans or deposits that customers make. In order to make more money, banks typically lend to those who are a low credit risk and have significant assets to secure a loan against. This prevents unrestrained charge-offs and loan losses for these big institutions, but also restricts the amount of customers that are eligible for loans. In some ways, those with bad credit who truly have the means to repay a loan are left out in the cold. Applying for a business loan at a bank can be a tenuous procedure. The following are five pitfalls for those applying for a business loan at a bank:
Banks Exist to Protect Themselves – Is Your Credit Perfect?
All banks operate on a risk versus reward model. Those with riskier ventures are greeted with higher interest rates, a more difficult approval process, and less favorable terms. Applying for a loan at a bank means that unless you have nearly perfect credit and significant assets, a turndown might be in your future.
Who Has the Time to Wait?
Applying for a business loan at a bank is a fairly quick conversation. The part that takes a long time is the underwriting process. This component of the entire loan approval process can sometimes last weeks or even months. Verification items are extensive and sometimes invasive, and can push the timeframe beyond what is deemed acceptable by a business owner waiting for funding.
Documentation is Extensive – and Difficult to Assemble
You are busy running your company, so the last thing that you have time for is to pour over stacks of files, extracting a laundry list of documents that the bank needs in order to consider you for approval. If you are applying for a loan to help ease a financial issue, taking time away from generating revenue makes no sense.
Your Payments Might End Up Owning You!
Banks write both revolving and closed ended loans. Those that are closed ended have specific monthly payments that must be made every 30 days or else you face major fees and a negative report on your credit. So what happens if business is slow one month? The loan payment is still due and the bank expects to be paid.
You Could Lose Everything!
Banks love extending loans that are secured, meaning that the borrower has pledged some type of collateral against the loan amount. Many banks require that business owners personally guarantee their business loan. This means that if the business loan goes into default, a bank can seize a borrower’s personal property. So not only is the business in trouble, but you could also lose your car, your house, and your life savings in the process!
Consider Your Options Carefully
There are many business loans available today via a multitude of channels. One is the asset-based loan. Asset-based lending is an ingenious strategy in that these loans are extended and repaid based on the actual amount of revenue from the business. Once a loan has been funded, the repayment plan is tailored to the specific, daily revenue totals for the business. Slow day? Your payment will be lower. Business is booming? A more aggressive payment can be made on that day, reducing principal even quicker. These loans aren’t available through banks and are helpful for those with bad credit. Allbusinessloans.com specializes in these types of loans. For more information please visit our “How it works” page at: http://allbusinessloans.com/how-it-works/