Blog
Archive for April, 2008
Business Financing For Those With Bad Personal Credit
April 24th, 2008
By The XBanker
The harsh reality for most business owners is that they can’t escape their personal credit. With the rise of the McBanks, business lending (particularly for loan amounts under $100,000) have become auto-scored and personal credit driven. This is what we lovingly refer to as the Bank Lending Matrix. In this system, you either fit the mold or not. It is even tighter these days due to the mortgage melt-down and irresponsibility of lenders and consumers.So if you have poor personal credit (by bank standards that means a score under 670) you need to forget about bank small business loans until you get your score up. If you need the cash now, you may need to consider bringing on a partner with good personal credit or trying to raise money from investors.I’d prefer to see you get the money you need without giving up equity. So, depending on your borrowing needs and the status of your business, here are some potential solutions for you:
You may just find that you can get all the money you need from one or more of these solutions. Feel free to speak with one of our associates if you have any questions or need help with one of these solutions.
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Social Lending or Peer-to-Peer Lending
April 21st, 2008
By The XBanker
Here’s the truth: lenders care about risk – and so should they. Underwriting guidelines are 100% based on the principle of risk avoidance. It’s simple: the less risky you are perceived to be, the better your chances are of getting approved. The unfortunate truth is that with most banks, your “story” doesn’t play a part in the risk equation. You could be extremely gifted, passionate about your business, intelligent, and a proven winner in past ventures, but, unfortunately, non-tangible factors rarely help your case.
The Bank Lending Matrix doesn’t accept intangibles as data inputs, so these intangibles are neutralized at the banks.The only way to overcome this is to get your “numbers” in order. This means to take care of your personal and business credit score, build your business, create legitimate revenues, and wait until you have 1-2 years of history before you ask the bank for money.Waiting isn’t ideal for most entrepreneurs, since they need the money to get started.
A new and viable financing option is something referred to as social lending, community lending or peer-to-peer lending. Some of the most well know are Lending Club, Prosper, Zopa and Virgin Money (formally known as Circle Lending). With the exception of Virgin Money, these social sites are online platforms that allow a prospective borrower to tell his or her “story” when seeking a loan. If someone in the community likes what you say, they may choose to lend you money.Here’s an example, let’s assume you want to borrow $5,000. You don’t actually have to convince one person in the community to lend you the full amount – you just need to persuade 100 people to lend you $50 each (for instance).
Using Prosper as an example, Prosper takes the $50 from each of the 100 lenders (average Joes, not big banks) and issue you (the borrower) one loan. You only have to make one payment each month to Prosper. They manage the payment process and distribute the money to the 100 people. It really doesn’t get much easier than this!
I like this lending option, because the underwriting is not automatic and intangibles definitely play a factor in the decision to lend money. Just because your not dealing with the matrix, doesn’t mean that you get to take advantage of a bunch of pushovers – you might find that your peers are even more risk adverse than the banks! Nevertheless, social lending is a great alternative to the banking industry and might be a viable avenue for getting capital for your business.
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