How to End the Vicious Cycle of Small Business Loans

business loan

Does this sound familiar? You need a loan to save your business. However, you can’t get a loan because your business is struggling.

Trust us when we say you’re not the only one stuck in this cycle. Over 80% of small businesses have to close their doors forever because of cash flow shortfalls. But sadly, the big banks deny roughly 75% of small business loan applicants.

However, if a major bank says “No,” that doesn’t mean there is no hope. Here are some of your options to get access to cash or funding.

A Merchant Cash Advance

Here’s the good news: This is not a loan. It’s not subject to the same type of regulations that typical lenders and big banks are bound by. This is why you should check out Payvant Capital to explore your options if you’ve been denied a small business loan.

A merchant cash advance (MCA) can give you an influx of funding in exchange for a certain percentage of your future transactions. These are extremely popular among small business owners for three main reasons.

The first reason is the high approval rates. You can qualify if you have been in business for 6 months and have monthly transactions over $10,000.

The second reason is that the MCA’s turnaround time is incredibly fast. You can submit your application and get approved within 24 hours, which makes it ideal for emergency situations.

And the third reason is the reasonable payback terms. Your payments are linked to your income, so if your sales are slow for a month, you will be making smaller payments. This is better than having to worry about making the same static (and often large) loan payment every month.

A Business Line of Credit

A line of credit through a bank can be just as difficult to get as a loan. However, you might be able to get a business line of credit through a smaller bank.

This could be attractive because your payments and fees are based on how much of your line of credit you actually use. If you have a line of credit up to $10,000, you’re under no obligation to use it all.

The downside is that you’re often not free to spend your money however you see fit. You may have to submit paperwork to the lender explaining why you need access to your line of credit, every single time you need money.

A Business Credit Card

This is another form of revolving credit, and your odds of approval are higher than the bank. You can also get perks like cashback and reward miles when you use it.

However, the credit limits are often relatively low. So, if you need a major influx of cash or a means of funding something major, this may only get you part of the way there.

You can break the cycle! All 3 of these options are perfectly viable and help business owners like you every single day. Just because the banks aren’t an option doesn’t mean you’re out of options.

Don’t give up! Find the best option to help your business and your future!

Restoring Your Credit

credit card

Unfortunately, life doesn’t always go as you plan and, sometimes, you will encounter periods of financial difficulty. If you have a savings set aside, it’s no issue, and you just take out the money to cover your expenses. However, without a safety net in place, you will end up borrowing money from your bills and end up with late payments, additional fees and a reduced credit score. The good news is that if your credit score is low, there are ways to improve it. 

Pay On Time 

One of the best ways to start to raise your credit score is to pay your debt on time. Thankfully, there are several ways to achieve this. If you have equity in your home, consider doing a refinance and use the money to pay down your outstanding debt and bring your bills to a current status. If you don’t have a mortgage or no equity in your home, you can borrow a small amount through an installment loan. For instance, if you live in South Carolina, you can look online for lenders who offer South Carolina installment loans

Re-evaluate Your Spending Habits 

Many people bring in enough money to cover their bills, but they simply have poor spending habits. If you see something you want, and it costs over $500.00, instead of putting it on a credit card, save up for it. Adding it to your debt is only going to increase your monthly payments and your debt-to-income ratio. Learning to pay with cash is a great way to start reducing your debt. 

Paying Down Debt 

Debt management is a very important component in a healthy credit score. Your debt-to-income ratio can also lower your overall credit score. It only makes sense that if you have a mortgage, two car payments, a personal loan and multiple credit cards with high balances that you will give the perception of a higher risk to lenders. By reducing the balances on your credit cards to within a third of the credit limit, you’ll start to increase your credit score. 

Importance of Established Credit 

Your established credit shows any lender that you are trustworthy and responsible. So if, while you are in the process of reducing your debt,  you may opt to close cards out, be wary. If you have relatively new cards, such as store cards, with higher interest rates, you can cancel them. However, if you have a few cards that you have for more than a few years, those you should keep active, as they will work in your favor. 

Borrow Only What You Need 

Even if you are able to borrow more, you should always only borrow the amount of money that you need. This will help you to repay the loan in a shorter amount of time and pay less in interest, and it will also help to keep your debt-to-income ratio within the acceptable range.   

Establishing a Budget 

Without having a budget to reference, it’s easy to miss a bill that only comes due a few times a year, such as school tuition or your property taxes. A budget is a simple piece of paper that you use to keep track of your income against your expenses. It also lets you plan for your future, with the purchase of a home, a car, or for your retirement. Additionally, a budget prevents you from spending all of your money, making it clear when payments are due and the money you need to cover them so that you keep your credit in good standing. 

It takes years to create a good credit score and, unfortunately, only a few late or missed payments to undo your efforts. The good news is that if you start to pay your bills on time and work towards reducing your debt, your credit score will begin to move in a positive direction.