You own a small business, one that you have worked hard to ensure has happy customers, quality products, and excellent service. Now, because of all your hard work, you are finally getting the recognition you deserve- your small business is growing rapidly- reaching new clientele and expanding your product lines, along with your profit margins. However, growth can be expensive, and you need capital to reach your full potential. As a small business owner, you have a wide variety of options available, but the most popular of these are the national banks found on every corner. Is getting a business loan from a bank the best option for you and your specific small-business needs? Is factoring a viable option if you have B2B or B2G open A/R? Learn why a Non-Recourse A/R Factoring Company can be Better than Banks for your Small Business.
Here are the positive aspects of getting a business bank loan for your small business:
Lower Interest Rates, Sometimes
Banks can provide interest on loans at a lower rate than most alternative lending sources simply because you and your business have been vetted thoroughly enough to be known as a safe lending choice. The interest rate a bank charge depends on outside factors, like the Federal Reserve’s current monetary policies and the market-going interest rates, along with personal factors, like you and your company’s financials, credit score, and how long you have been a client of that particular bank.
By successfully paying back a business loan from a bank, you increase your credit score and history, making it easier to get a loan with lower interest rates in the future.
These encouraging aspects do not come without serious drawbacks, unfortunately:
The Application Process
For a bank to even consider you for a business loan, they must conduct a thorough and personal verification process. While, normally, this would not be a problem, your business is small and trying to grow. Thus, you may not have the required credit score and credit history, nor the current financial statements and revenue streams needed to be considered for a loan.The reality is only 21% of small businesses ever get approved for a business loan. Not only do banks scrutinize past financial information of you and your small business, but also current investors and future revenue projections. Becoming qualified to borrow from a bank is a major hurdle for most small businesses when applying for a loan.
The Default Consequences
You are a responsible owner, but the economy took a turn and now you cannot pay back your loan to the bank. Suddenly exorbitant interest rates are piling up with no way for you to pay them, and, because you borrowed from the bank, they are allowed to take whatever you personally own as collateral. Not only your business profits, but also your house, vehicle, investment portfolio, and other valuables. The banks are not one to be flexible or understand your situation, and you and your company will pay the price dearly if you default on your business loan.
Most small business owners find banks to be an uncooperative and rigid institution to conduct business with, whether the business cannot be approved for a loan, the interest rates are extremely high, or the lending options they want are not available through the impersonal system of bank loans. You and your small business deserve a lending source that will find a way to help your company grow and thrive. Thus, when most businesses fail to find the service they need at banks, they turn to alternative lending companies. The smartest, safest, and most popular of these choices being factoring companies. Factoring companies use your business’ invoices, inventory, or imports as collateral to ensure that your business has access to a quick, unencumbered flow of cash.
Factoring companies work with your business to set up a plan for borrowing that fits your business’ growth rate and company needs through the many financing options available. Some factoring companies include credit insurance, vetting of your clients to ensure you are paid, and personal customer service to promote positive development in all characteristics of your company. However, not all factoring companies are equal. Your business needs the best customer service with a quick and easy lending process, so do not let a negligent lending company impede your business plans.