In our last blog, we revisited the topic of merchant cash advances and explained some of the main advantages that Canadian business owners can get from them. The advantages are especially appealing given the fact that so many entrepreneurs have been turned down by their banks when attempting to secure business loans. Our last blog also highlighted three of the reasons why merchants would have their loans denied.
In today’s blog, we’ll further explore these reasons:
1. A poor credit history. We pointed out, in our last blog, that one’s credit history always comes into play when applying for a loan. If a business owner has shown any history of making late payments to their creditors, it will significantly impact his/her ability to borrow money going forward. As well, if an individual has no credit history at all, it makes securing a loan a lot harder.
“When reviewing a business loan application, a credit history is one of the first things that lenders look at,” explains Derek Thomas of Balboa Capital, “A good credit score shows that a business owner has a solid handle on their personal and business credit, which is what every lender likes to see. On the flip-side, a poor credit score doesn’t instil confidence in lenders. A business owner with a sub-par credit rating might not be able to meet the financial obligations that are set forth in the loan agreement.”
2. No collateral. Our last blog also revealed that collateral is often necessary for business owners to get approval for their loans. To make clear, banks need to ensure that they won’t be on the hook if their borrowers are unable to repay the money they’ve been loaned. Therefore, they ask that something be placed on the line – such as one’s home. Thomas further explains why banks tend to insist upon collateral.
“Small businesses that are just starting out, or that don’t have sufficient cash flow or credit, will need to pledge collateral when applying for a bank loan,” he writes, “Companies with a limited amount of collateral will face challenges when trying to secure bank loans. Business owners should consult with their lenders to find out which types of assets or property can be used as collateral. This might include cars, trucks, real estate, business equipment, and investments. If the business loan is not repaid, the bank can acquire the collateral and sell it.”
3. Lack of a business plan. The third reason for loan denials, pointed out in our last blog, was the absence of a detailed business plan. To reconfirm, banks need to know what their borrowers plan on doing with the money they’re loaned. That way, they can make better assessments of a business owners’ abilities to generate enough money to pay back their loans. Pathway Lending explains that a lack of preparation can result in a loan request being rejected.
“Some businesses get turned down for small business loans because the owners aren’t prepared,” reads their website, “Before applying for a bank loan, businesses should have a written business plan, financial statements or projections, personal and business credit reports, tax returns and bank statements…They should also have copies of relevant legal documents including articles of incorporation, contracts, leases, and any licenses and permits needed to operate.”
At Canadian POS Corporation, we offer Canadian business owners opportunities to receive merchant cash advances in lieu of business loans. Our program does not ask of any of the above mentioned requirements that are often reasons why business owners get their loan requests denied by their banks. For more information and/or for a free, no obligation quote for a merchant cash advance, call us at 1-877-748-2884 or email us at info@localhost.