Trends go to show that bad credit business capital loans are growing in both demand and supply. What remains an apprehension however, is the concern for the safety of such loans. Safety in a loan can be seen as having two prongs:
- With regards to repayment ability and the assessment/understanding thereof, and
- Choosing the right lender – one that is both legitimate and fair.
One thing is true for virtually every transaction in business – there are risks and there are ways to mitigate them.
Being a trusted and well-established lender of alternate business loans that include services tendered to bad credit score borrowers, at BusinessCapitalUSA we believe in educating our borrowers and being transparent about all risks and concerns that are relevant to borrowing from us. With each risk that we discuss, we share simple, logical ways to protect against them.
With the first few sections ahead, we aim to cover the first point above and in the last section, we throw light on ways to identify trustworthy direct lenders, so that if you ever need to deal outside of our services, you should still know what to look out for.
The Risks associated with Unsecured Loans
If you as a small business owner seek to apply for a business loan and have a poor credit performance history, most chances are that you shall need to look for a non-bank direct lender providing alternate business loans. These are essentially unsecured loans as such lenders are not authorized (at the time of the writing of this article) to provide loans against collaterals.
While such loans are more tempting and also useful in the majority situations, there are a certain number of risks that come along with such a transaction:
- In case of repeated failure of repayments and long over-dues, there is a risk of legal action being taken for recovering the loan as there are no collaterals at stake to cover for the loan when unpaid for.
- There is a slight possibility of securing a loan amount higher than the worth of the assets or liquid assets of the business, which may need the borrower to consider availability of personal liquid assets in case the repayment is not manageable by the business.
- Typically, bankruptcy of a company or personal bankruptcy would not protect against the liability of unsecured loans.
The best and perhaps the only way to mitigate such risks is to only apply for loans that are very likely to be repaid by you or your business as per the laid out time lines. Keeping a back-up plan chalked out for what needs to be done if repayment is becoming difficult, is a good practice.
The Risk in Guaranteed Loans with No Credit Checks
Whether your business is a startup or an established one, many lenders today are dedicated to offering guaranteed loans with no credit checks.
While a lender with healthy and fair practices would attempt to assess the financial health and estimate the financial trajectory of the business before deciding the loan amount that can be offered/approved on a guaranteed basis, there is a limit to how accurately any future predictions can be made.
To mitigate risks associated with such an offer, it is important to disclose accurate information to your lender at the time of application for the loan, and to only apply for a loan amount that is safely repayable.
The Risk specific to Long-Term Business Loans for Bad Credit
A poor credit score can often be a representation of poor understanding of the credit system. It can also reflect poor financial management skills and habits. While in the short run (say 1 to 12 months) income is a fair indicator of repayment ability, in the long run, credit scores are a key indicator that must ideally not be taken for granted.
Long-term business loans for bad credit borrowers tend to be expensive as the high risk loans are high in interest that accrues more with time.
The only way to mitigate this risk is to borrow high risk loans for the shortest tenure that repayment should be workable for and avoid choosing longer term loans over feasible short term loans.
Finding a Legitimate Lender
After understanding the main risks and addressing each one, a loan decision needs to include the understanding of the lender’s legitimacy and fairness in offering loans. High risk loans such as those for bad credit borrowers are bound to be more expensive than traditional loans and are only offered by non-bank direct lenders.
With BusinessCapitalUSA, you can rest assured of being offered a competitive deal for any business loan that you apply for. Years of trusted services tendered to our valued customers gives us an advantage of being experienced in dealing with business from many varied industries.
Easy signs that ensure you’re dealing with a legitimate lender shall include:
- A contact number and an email ID that are promptly responded to
- Prominent online presence and good consumer feedback
- A secured website
- Years of trusted service
- A transparent and clear agreement that one receives on successful application of the loan.
If you would like to initiate communication with us for a loan, a simple online application shall be the fastest way forward and you can find it here.