Access Financing, Become Bankable

The small business financing market is about $500 billion a year with the non-bankable or “alternative” financing percentage of that being roughly 33% or about $150 billion. That means there is a lot of capital available in the form of non-bankable loans for small businesses.

The major issue with non-bankable financing programs is the fact that if your business is not bankable then you fall into the historical statistical category of being extremely likely to default. That has nothing to do with you or your actual business, it only means that all those non-bankable businesses that came before you have already shown a historically very high rate of default. And now that your business is also not bankable it falls into that high-risk category as well.

Non-bankable lending programs tend to be very high interest, the loan amounts are smaller, and the repayment terms are very short.

Let’s explore the typical rates and terms for non-bankable loans:

• If you factor your receivables, you will pay 3% a month which is 36% a year.
• Business credit cards are 34.99% if you are one day late as there is no 30-day late safety net.
• Revenue based loans quote a factor of usually 1.35 or higher which equals 35% interest or more.
• Equipment financing will also quote a factor of say 1.29, which effectively 30% interest.
• Repayment periods for non-bankable loans tend to one year or less. Sometimes two years.
• The largest percentage of non-bankable loans are $100,000 or less. Up to $250,000 is being done.

What are the most popular and common non-bankable lending programs?

• Revenue Based Loans - These loans are based upon the past revenue generated by the business based on the last 4 to 6 months of bank statements depending on the lender. The amount loaned is normally one to two times the gross monthly revenue. These loans are usually short term back pays of 7 to 9 months with interest rates in the 35% to 50% range. Payments are from daily M-F ACH bank account deductions.
• Merchant Cash Advances - Very much the same as revenue-based loans except the loans are based upon the monthly credit card receipts instead of average gross monthly revenue. Payments are taken as a percentage of each new credit card sale that is processed.
• Account Receivable Factoring - When your business has open invoices with other businesses (not consumers) those invoices can be factored (sold) to a third party. The third party will typically pay around 97% of the invoice value. Then the “Factor” becomes responsible for the collection of that invoice.
• Business & Personal Credit Cards - This is credit card stacking where a combination of business and personal credit cards are obtained that typically range from $25,000 to $150,000. Requires an owner to personally apply and guarantee each card. To start with cards are 0% interest for a short period and then go to 34.99% after.
• Equipment Leasing & Financing - Most any type of equipment can be leased or financed. Equipment leases can include service agreements or other add-ons such as software for computers. Because equipment is part of the security, credit score requirements are lower. For non-bankable, rates are still 30% or higher.

The providers of these non-bankable programs are typically private companies that are willing to take higher risks than banks. Once your business becomes bankable the rates drop down to 9% to 12% range, the amounts can go up to $5 million and the repayment terms can go as far out as 20 years. By becoming bankable a business becomes one of the 1% of small businesses that are currently bankable and they become the chased instead of doing the chasing.