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Can I get a business loan for a struggling business?

small business loan application
It is possible for struggling businesses to get business loans and there are a number of ways to do so.

However, it is important to qualify for financing first and foremost since that is the only way in which lenders will actually end up giving a business loan to a struggling business.

Qualifying for Business Financing

Scott Griest, Founder and CEO of American Finance Solutions, said that when underwriting businesses he focuses on the health of the business itself. By focusing on a business’ operations, American Finance Solutions is able to fund businesses that banks reject. This includes businesses who are less than a year old, which means they are often struggling to generate cash flow.

“Most banks and credit unions have an asset-based focus and are only willing to assist small businesses if either the business or business owner will pledge significant collateral in case of default,” said Griest. “We realize that most small businesses do not have significant assets and if they do they are already leveraged; hence our focus is on cash flow.”

When a business has positive cash flow, it signifies to business loan lenders that the business is able to repay the financing. After all, a business that isn’t bringing in money won’t be able to repay any money that is borrows.

Jennifer Alvarado, Lead Faculty for the Goldman Sachs 10,000 Small Businesses Initiative at Long Beach City College, said that struggling business owners need to know exactly how much money the business requires and how the funds will be used to grow the business. They also need to offer a compelling story and a three-to-five year forecast that demonstrates their ability to repay the business loan.

“Lenders will fund a business that may be struggling now if the owner can explain how the borrowed funds will be used to grow the business and create a profit,” she said.

Others, such as Biz 2 Credit’s CEO, Rohit Arora, said that businesses need to rectify their bad credit scores before they can apply for business loans.

Once they do, they can apply for merchant cash advances and other types of loans, but not all of these are necessarily at low interest rates, even for businesses with improved credit scores.

“Cash advance companies charge 20 percent over 60 months, which is an extremely high rate as compared to an SBA loan,” he said. “But if a business is struggling and traditional banks reject the loan application, an alternative lender might be the only viable option.”

Even businesses with great credit scores can be rejected for a number of reasons.

“Incomplete loan applications or a lack of supporting documents are the most common reasons why banks reject loans,” said Arora. “Right now, there is a backlog because the IRS was closed and tax information has not been getting to loan officers.”

Lenders for Struggling Businesses

Owners and business leaders can turn to credit unions, banks, and online lenders to get financing to sustain their businesses.

(Go here to get matched with an online lender)

Business owners and leaders may have more success by going to a business loan lender that they have an established relationship with, such as a bank which holds the business’ bank accounts.

Paul Aitken, the CEO of borro, said that there are a number of places a struggling business can get a business loan. There is the SBA, banks, non-bank financial institutions such as Lending Club, merchant cash advance lenders, micro-financiers, and asset-based lenders.

When it comes to providing collateral in exchange for a business loan, businesses can offer up account receivables, inventory, equipment, machinery, and even an owner’s personal luxury assets.

Fortunately for struggling businesses, the internet allows them instant access to lenders and financing options.

“The internet has enabled innovation in underwriting by allowing lenders access to information never available before (like social media, selling sites, and shipping information),” said Aitken. “This should result in lenders approving SMBs that otherwise would be declined based on traditional underwriting practices.”

Post-Recession Business Loans

Denise Beeson, Loan Officer with BaySierra Financial, said that current conditions in the lending market make it difficult for many types of businesses to get business loans. She advises companies look into peer-to-peer funding instead.

“That is funding from the sites such as Prosper and Kiva,” she said. “These sites provide the borrower a means to state their case to the public at large and to possibly receive funding in small increments. These sites act as a ‘consolidator’ of the funding and for a fee act as the intermediary for the borrower.”

Beeson has seen that many companies mistakenly believe that the SBA lends to them directly. In actuality, SBA loans come from “preferred lenders”, which are just small business loan lenders that offer financing guaranteed by the federal government.

Walter Simson, a consultant with Ventor Consulting, said that even though the Great Recession is over, many businesses are looking to either borrow business loans or refinance the ones they forcibly took in “unhappy relationships” with banks.

Overall though, business loans help struggling businesses.

“Often banks over-lend when times are good,” said Simson. “Then in recessions, they see their errors and seek to get repaid. The borrowers who can withstand this cyclical treatment either are, or become sophisticated in how to make a bank happy.”

So even a struggling business can find a business loan lender, so long as it proves it will make the bank or lender “happy” in the end.