Whether you’ve been a business owner for many years or not, obtaining a business loan can be a difficult task. It can be frustrating for some people as it requires a lot of paperwork and a solid credit score. The process can be time consuming, and ultimately, you’re at the mercy of the lender mostly if you are trying to get opportunities for high-risk business loans.
This is especially true for small business owners with poor credit scores. They struggle to get approved for loans and are often denied by traditional lenders for multiple reasons such as:
Low Credit Scores
This is the most important factor for why business owners are denied loans and classified as high-risk. Lenders want to see if your business is generating enough revenue to cover all the current expenses and the potential loan payments. Businesses with higher credit scores have a greater chance of obtaining a loan. However, if your business has a low or poor credit history, lenders may still be willing to analyze the books and see if your future revenue prospects will be sufficient enough to pay back the loan. Some lenders will offer loans to high-risk businesses even if the owner has a low credit score.
Annual Revenue Trends
This is another factor that lenders take into account. Businesses with declining annual revenues may not qualify for a loan or at best a very small one. Annual revenue trends are an indicator of a business’s health, and if your sales are on an upward trend, you may be approved for a high-risk loan even if your credit score is low. Many high-risk loan lenders set an annual income threshold and if you are above that the line, you could be eligible for a loan.
Relatively New Business Startups
Many traditional banks do not offer loans to new business startups. If your company is less than 3 years old, you might face a problem with traditional lenders. Your business history indicates whether your business will have longevity and be a good candidate for a loan. However, it is possible to obtain a high-risk loan or merchant cash advance even if your company is less than a year old as long as it’s producing a consistent and reliable income flow.
Unpredictable Business Industries
Another factor traditional lenders will take into account is the type of industry your business is operating in. Usually, they hesitate to approve loans for businesses in unreliable or unpredictable industries. For example, retailers, manufacturers, and restaurants are classified as unreliable and unpredictable business industries. Some lenders have reservations about lending to these business industries. However, if you have a long and consistent revenue history, you may be granted a high-risk loan.
High Risk business loans bad credit are not only risky for the lenders but the borrowers as well. It’s highly recommended to take a loan only if the money is for a specific purpose like expanding or improving your business model. Make sure you choose a lender carefully and get multiple offers. Failing to repay a loan can damage your business and personal credit. A high-risk loan is not a bad thing if it helps you take advantage of an opportunity and adds to the growth of your business.