It’s a heart-sinking moment: you learn your application for a small business loan has been rejected. If you are really counting on that loan for an immediate financial need, you may even panic. What do you do now?
Too many entrepreneurs give up. Before you do that, keep in mind there may be other financing options you can explore if you’ve been turned down for a small business loan. Here are five of them:
Business Cash Advance
If your application was rejected due to your personal or business credit scores but you have strong revenue, a business cash advance may be an alternative. (Some versions of this type of loan are known as a “merchant cash advance.”) With this type of funding, you’ll get an advance against future anticipated revenue, usually in the form of credit card receipts, or advances against payments you receive through Amazon, Paypal or Square.
To qualify, your business may have to demonstrate a healthy amount of annual revenue; six figures or more is not uncommon, though that’s not a hard and fast number. Some financing sources require you to have been in business at least 9 – 12 months. But personal credit score requirements may be as low as 550, which is considered a subprime credit score.
This type of financing doesn’t come cheap: APRs can be upwards of 50–75% or even higher. And since small business lenders don’t have to disclose an APR, be sure to use a free online small business loan calculator to help you decipher how much it will really cost.
Still, this type of financing can be very fast and easy to get if you qualify, making it a potential business-saver for entrepreneurs in a pinch.
Similar to a business cash advance, invoice financing generally doesn’t require stellar credit. In fact, some companies offering this type of financing won’t check credit scores at all.
With invoice financing, you’ll be advanced a portion of an outstanding invoice. The company advancing funds will be more concerned with the creditworthiness of the client that will be paying the invoice. They’ll usually advance a portion of the invoice upfront and the rest (minus their fee) after it is paid.
This also is not typically the cheapest source of funding, but you can have the funds in as little as a day, so it can be helpful in a pinch.
Crowdfunding can be considered an “equal opportunity” financing source in that it really doesn’t matter how new your business is, or what your business or personal credit scores are. The main criteria for a successful crowdfunding campaign is your ability to convince others to invest in your vision.
There are several types of crowdfunding. Reward or donation based crowdfunding portals are the most popular, but debt or equity crowdfunding platforms can also work well for small businesses. Each has its pros and cons. Regardless, though, you’ll need to be able to tell a compelling story about what you’ll do with the funds. It helps tremendously if you already have a loyal following to market to, whether that’s an email list or social media following. If you’re seeking reward crowdfunding, you will likely need a good video promotion as well.
If you are successful, you’ll usually pay a fee of up to 5% of the amount you raise, plus credit card fees to cover the credit card processing fees for payments received from donors, backers or investors.
Small but powerful describes microloans. They are often available to entrepreneurs who are having trouble accessing traditional financing. Loan amounts are usually quite small (say $500 to $10,000) but some microlenders make larger loans that banks may still find too small to bother with, up to $50,000 or even $250,000.
Many microloans are made through Community Development Financial Institutions (CDFIs) with a goal of spurring economic activity. Interest rates are often favorable, and while they may not be rock-bottom, they are often cheaper than some of the higher cost options mentioned here.
CDFIs and other microlenders often provide training and assistance to help entrepreneurs prepare for getting access to capital and then will provide technical assistance after the loan is disbursed in order to help the small business owner be successful. Find microloans through your local Small Business Development Center (SBDC), Women’s Business Center, Veteran’s Business Outreach Center or search at the Opportunity Finance Network website.
Don’t overlook credit cards as a fast source of funding, particularly if you have cards you already carry that don’t have a substantial balance. You may have a generous credit line available that you can tap for quick cash, then pay back quickly out of increased cash flow, or over time.
Keep in mind that a business credit card often will not show up on your personal credit reports unless you default. If you plan to use a significant portion of your available credit, a business credit card may help protect your personal credit from your business debt. (This chart explains how business credit cards report to personal credit.)
Also make sure you understand the interest rate you’ll be charged on your balance; it may vary depending on whether you make a regular purchase, take a cash advance or use a balance transfer to access available credit. Business credit cards don’t carry the same protections as personal credit cards do under federal law, so read your cardholder agreement to make sure you understand the terms.
This article was originally written on November 7, 2017 and updated on January 20, 2021.
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