Starting a business is expensive. Unless you have a large cash flow, you’ll probably look to outside sources to get you started. While you have many options, where you’ll have to make the first distinction is between a personal and business loan.
What is a Personal Loan?
A personal loan, as the name suggests, is based on your personal qualifications. Lenders look at your credit score, bank statements, and income. They don’t look at your business income except how it relates to your personal income (how much income you claim). Personal loans often have longer terms and don’t require a guarantor to sign them.
What is a Business Loan?
A business loan takes into consideration both your personal qualifications and business qualifications. In other words, lenders look at how long your business has been around, how much revenue it brings in, and looks at its credit score. Business loans require a guarantor to sign and they often have shorter repayment periods. However, with a business loan, you can typically borrow a lot more money, but that comes with higher monthly payments.
Where business loans and personal loans have similarities, though, is what lenders look at for qualifying you for the loan. Just because you apply for a business loan doesn’t mean the lender won’t look at your personal credit history. They want to know that you’ll pay the loan back in a timely manner. If your personal credit score shows that it isn’t your normal habit, it may affect your ability to secure a loan or increase the interest rate lenders offer.
If you are worried about your credit scores or qualifying factors, don’t worry. There are business loan options out there that aren’t as restrictive as you think.
ACH Loans – Direct Withdrawal Loans
These business loans offer high interest rates, but fast funding. They are called ACH because the lender takes the payment directly from your business checking account on a monthly basis. It’s directly correlated to your business’s income. If you have a steady cash flow, you could be a good candidate.
Merchant Cash Advance – Borrow on Future Earnings
Like a personal credit advance, you can get money fast with a merchant cash advance. The money advanced to you is based on your credit card transactions. You’ll need at least $2,500 in credit card income monthly to qualify. Essentially, you borrow money based on your future earnings and get qualified based on the proof of your past earnings.
Business Line of Credit
While you have to go through a bank’s underwriting process to get a business line of credit, the qualifications aren’t hard to meet and the process goes fast. As long as you have at least a credit score of 559 or higher and $50,000 in annual revenue, you may qualify. You may have to put up collateral or take a lower credit line amount depending on your qualifying factors. Lenders offer lines up to $500,000. You only pay interest on the funds you use. Once you repay the funds, you can reuse them, much like a credit card.
The best way to get the business financing you need is to perfect both your personal and business credit score. Don’t give banks anything to worry about. Pay your bills on time, manage your spending, and keep your credit lines at decent levels so that you don’t look overextended.
Always check your credit report for errors and have them fixed right away. The more proactive you are in managing your credit score, the better off you’ll be in the end. Lenders give the most attractive terms and the highest credit lines to borrowers with great personal and business credit scores.