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How Alternative Lenders Can Help You Get a Loan, Grow Your Business, and Build Good Credit

In order to grow your business, capital is critical. While larger businesses might have stock offerings or equity loans from major investors, small businesses often have to rely on loans. A loan can be the key to accelerating business growth – it means a small business owner can buy new equipment that will increase production, hire new employees, or purchase new inventory. However, getting a loan often means your credit will be put under the microscope, which can spell trouble for small business owners trying to get a traditional loan. For small businesses it makes sense to look for a lender that can understand their unique situation. That’s where alternative lenders come in.

 

Small businesses may have bad marks on their credit due to past problems with liquidity (their ability to meet their short-term liabilities), and that can hurt their chances of obtaining a traditional loan. However, alternative lenders understand that a short-term liquidity challenge should not be extrapolated to assume that the business will become insolvent. For example, smaller businesses have fewer customers, and if one of the customers is late paying their invoice, this can greatly impact a small business’ ability to pay their bills and meet other financial commitments. This is just one of the nuances of credit decisions that are unique to small businesses and that alternative lenders like IOU Financial handle on a regular basis.

 

What are credit decisions based on?

A business’s credit is based on a multitude of factors including: the length of time in business, the amount of debt a company has relative to its credit and to its cash flow, and payment history. However, sometimes a new business has trouble getting any credit, and having no credit available can sometimes be looked at like having maxed out your credit – not good. Gaining new credit through something like an alternative loan can actually be a positive for a credit score. By building good credit, as you make payments on that credit and pay the balance down, your company’s credit rating will improve. A better credit rating means a company is more likely to gain access to new credit in the future, and it also impacts the interest rate they will pay on that credit. A loan to make improvements can also help companies increase revenue, another way a business can improve its credit.

 

What do alternative lenders base their decisions on?

Alternative lenders like IOU Financial know that credit is important, but it is just one chapter of the story. There are things beyond just credit score that we look at. We want to see the whole picture of your small business: Are you generating revenue? Is your revenue increasing? Where does your revenue fall in line with your expenses? What are your day-to-day bank deposits? For a business to be financially healthy the balance of assets, liabilities, and equity should be analyzed as well as an assessment of solvency and liquidity. In sum, you need to have the cash flow to pay your bills and make payments on the potential business loan. Of course, we will also see what the loan will be used for and if it will decrease expenses and increase revenues. A holistic assessment is necessary.

 

Want to see what alternative lending can do for you? Talk to an IOU Financial Small Business Loan Consultant and learn about the ways IOU Financial can help you get the capital you need.

The 3 Key Factors That Determine Your Rate for a Business Loan

There is nothing unusual about a small business seeking to borrow money. The two biggest questions the owner must face are:

  • How much will I be able to borrow?
  • How much interest will I pay?

The two questions are interrelated, because they are tied to how a lender evaluates your loan application. Whereas banks look almost exclusively at credit score, a good online lender such as IOU Financial takes a more holistic approach to your business and determines your small business loan rate accordingly.

The Holistic Approach

The three key factors we use to determine interest rates are:

  1. Credit Rating: Unlike a bank, we use credit ratings as just one component when underwriting a small business loan. The credit rating is a mix of your FICO score and your credit history. Because we look to other factors as well, a low credit rating doesn’t disqualify you from getting a loan at IOU Financial or force you to accept an astronomical interest rate. In fact, our rates are quite affordable and about half of what you’d pay for merchant cash advances. Folks can boost their credit ratings by handling credit responsibly, pay back loans on time, and keep your company’s debt-to-equity ratio reasonable.
  2. Cash Flow: Lenders set interest rates based on prevailing economic conditions and the risk that the borrower will default on the loan. One way to reduce that risk is to have a positive daily cash flow – that is, you collect more money than you spend on a day-to-day basis. IOU Financial considers this to be as important as credit score. You see, we don’t bill monthly the way banks do. Instead, you repay us daily in fixed, manageable amounts. If you show that you are consistently generating daily positive cash flow, we know that you will be a less risky borrower and can offer you more attractive rates.
  3. Financial Condition: Finally, we take a look at several indicators of your business’ risk. We want you to own the bulk of the company yourself, or share ownership with your spouse. Long-lived companies are less risky, so we want to see borrowers with businesses that are at least one year old. If you run a retail business (online and/or bricks and mortar), we want to see you generate monthly at least 10 bank deposits. Higher volumes can help with loan access and interest rates. It’s also helpful if you earn an annual revenue of at least $100,000, and that you average at least a $3,000 end-of-day balance in your bank account.

Affordable APRs

We use advanced computer algorithms to assess all three key factors when determining your loan APR. These quickly tell us whether you qualify for a business loan (85 percent of our applicants do) and how much interest you’ll pay. The nice thing is that we don’t charge fees for applications, processing or early repayments. You are charged simple interest on the amount you still owe, and no more.

We invite you to apply for a loan of up to $150,000 from IOU Financial. You’ll find our service is superfast and you’ll appreciate the low APRs available. Contact us today at (844) 750-8468!

For more lending advice be sure to subscribe to the IOU Financial blog.

5 Things Your Bank Won’t Say About Small Business Lending

We are not out to discredit banks or bankers, but we do believe that many potential borrowers make unwarranted assumptions about banks that we’d like to clear up. The bottom line is that sometimes a bank is a good place to get a small business loan, and other times it’s not.

  1. Banks Are Not Impartial

The small business loans you will be offered by your bank will be “products” that have been prepackaged for the “average” consumer. Certain products are favored and the bank pushes these, often offering incentives to loan officers who sell these products. This is not to say the products aren’t good, they just may not be good for you. Don’t expect you banker to tell you that, however.

  1. Most Bankers Are Not Credit Advisers

Even though bank officers may have fancy wood-paneled offices and wear expensive clothing doesn’t mean they have any certifications as credit advisors. For example, the average banker doesn’t have FICO Pro Certification, a basic credential that attests to knowledge of how credit scores work. Don’t expect this kind of expertise from the average banker, and if you need help with your credit history or score, be sure to speak to a qualified expert.

  1. Bank Loan Officers Are Not Human

Well, that’s a little extreme. What we really mean is that most banks use computer algorithms to determine whether you qualify for a loan and how much interest to charge you. Typically, the loan officer you visit takes down information and forwards it to the loan underwriters at the bank’s headquarters, who will not know or care one bit about any special circumstances attached to your small business loan request. For example, if you want to open a boutique in an up and coming area of town, some far-away analyst will look up the address, see that it’s listed as depressed and likely count that against you. In reality, the area may be on the rebound and your business plans may make a lot of sense.

  1. Banks Are Not the Only Alternative

Often, when entrepreneurs are turned down for bank loans, they feel that the door to credit has been shut on them. IOU Financial has made small business loans to thousands of such individuals, because they take the time to understand the full picture. Non-bank commercial lenders are looking for ways to say yes to your loan application. They have the flexibility to take into account a broad range of information beyond your credit score. Furthermore, non-bank lenders may be able to work out payment terms that banks do not offer. Banks can be a great resource, but remember that they are just one kind of resource – when it comes to small business loans, you have other options.

  1. Where Did My Loan Officer Go?

One dirty little secret among bank employees is that the good ones don’t remain at one place for very long. If your banker can draw a bigger salary from a competitor, chances are you’ll be assigned a stranger the next time you visit. Small business lending companies are run by entrepreneurs who are in it for the long run. If continuity of service and a personal relationship are important to you, think outside the box, er…bank, to include lenders where the owner is on premises and eager to meet with you.

For more small business lending advice be sure to subscribe to the IOU Financial blog.

IOU Financial Small Business Loans