How to get a business loan (even if your credit is bad and banks won’t work with you)

Guest blog written by Sean Meyer, a former Commercial Loan Officer

A few years ago, I was sitting in my home office – just doing my thing…

When I received an email, that made my week.

At the time I was working as a “tax consultant”, but since I’d just started my business months before – I was still in “take on any client” mode…

So naturally, I started receiving referrals from many different industries – and for many different roles.

With that said, for the most part – I’d say private equity firms accounted for most of it…

Where they’d reach out to me, asking if I could break down the financials of a company they were looking to acquire…

And even though I didn’t have any direct private equity experience, I did do a lot of acquisition financing during my days as a commercial lender – so the transition was pretty easy.

Anyway, did this for awhile – and things were going “okay”…

But like most new entrepreneurs go through, I was working 80 hours a week – while still not being able to pay the bills…

So that part was depressing, but this particular week was even worse – as I literally had zero clients in the pipeline…

And my bank account was far from “fat”.

With that said, this is the same reason why I was so excited to receive an email with the subject line of:

“Referral from Rowheim”

On a Thursday afternoon, and Rowheim was a really good client of mine – who just had really sporadic requests…

But let’s just say, after seeing this email – I opened it right away, then began reading through everything…

And by the time I was done with this email, I was excited – but honestly not sure what to do.

Say that, because instead of the typical request I’d usually receive…

Where private equity firms wanted me to look at an existing business, this email was different – as the guy was asking me to come on board…

And work for him, as a commercial loan underwriter (analyst).

Now to start, I absolutely love this role – and did it for a few years in the banking world…

So I knew what to do, but I could also tell this guy wasn’t a bank – and was a little confused on why he would need this…

So before moving forward, I had to jump on a call with him – to figure this part out.

As I’m sure you can guess, he had no problem with this – so we actually jumped on a call 24 hours later…

And within little time, he:

Blew my mind

I guess there’s a few ways I could explain this as well, but let’s just say – after going through the typical small talk…

Where we discussed weather and all that, we finally got into the good stuff – and I started off…

By asking what he did.

After that, I could tell the hardest part for him was just elaborating on his specific business – but after a little bit of thought…

He simply mentioned how most people refer to his industry as alternative lending, but nobody knows what that is – so in short…

They’re really private commercial lenders, who still give out loan products and all that – but for the most part…

They just use investor’s money, instead of customer deposits (like a bank) – and due to that…

They’re able to have more practical underwriting guidelines, that most small business owners actually qualify for.

With that said, after hearing this – I was absolutely interested right away…

Because I’d worked in commercial lending for 5 years, and had never heard of this before – but still realized it was a good idea…

So after a little bit of thought, and a few more questions – I decided to start working with him…

And was:

Amazed with all the people we were able to help

Whether it was getting them into a customized product, that banks didn’t offer…

Or whether it was applying practical underwriting guidelines, that helped these small business owners get the funding they need – even though they’d been turned down by local banks in the past…

We were usually able to find some loan setup that’d help them get approved, and that’s what brings me here today.

In short, for the rest of this article – I want to cover the 3 main reasons why these alternative lenders are able to help small business owners…

That way you can see if this is something that might benefit you, and if so – I’ll leave a link at the end…

That connects you with an alternative lender, that way you can receive a free quote – and see what they can do for you as well.

With that said, we’ll dig into that part later on – but it’s important to make sure this is for you first…

So let’s jump into that, starting with:

Reason #1 — They help small business owners, with a bad credit score

Alright, so I’ll be honest with you — this is something I didn’t notice “too much” in my days as a Commercial Lender…

Because most people realize, that if you have a bad credit score — then banks won’t help, so they never reached out…

But after becoming a “Senior Credit Analyst” for this guy, and seeing all the loan requests that came in…

I started to notice how big of an issue this was.

In other words, it seemed like 35% of the applications we received — would be from small business owners, who have a bad credit score…

And at the surface, it made sense that they’d be denied for a bad credit score — but here was the crazy thing…

For the most part, their business financials were pretty good.

Not saying this happened in every case, but usually — this would happen…

To small business owners who hit a rough spot in the past, fell behind on a few bills — but kept pushing through…

Then eventually figured it out, and got back on their feet.

With that said, they still ruined their credit score along the way — because those past due marks don’t come off quick, so they didn’t have many options…

And that’s why I was so amazed, to see how these alternative lenders — actually had products, that were designed specifically for this situation.

There’s a few different ways they do this, and I could talk about this for days — so I’m not going to get into too much detail now…

But just to give you one example, one of the more popular products for this group — is a merchant cash advance.

If you’re not familiar with this product, it’s really where they give you a loan — based on your historical credit card sales…

And the main “logic” behind that, is that if they’re able to structure a deal — to where a portion of your credit card sales, is automatically applied to your loan amount…

Then they don’t care about:

  • Credit score
  • Debt service coverage
  • Collateral coverage
  • Etc…

Because they know you’re not going to just stop doing sales, so they realize they’re protected no matter what — and in turn…

Will gladly give you the loan amount you’re looking for, assuming your credit (or debit) card sales can support it.

With that said, again — there’s a little more that goes into it, and they have other products that help with this…

But the main point, is how they’re able to help small business owners — who have bad credit scores…

And that’s pretty unique.

Anyway, that’s reason #1 — and for:

Reason #2 — They have customized products, that helps small business owners — in every situation

Now at this point, I’ve done this enough — to where I could give you dozens of different examples…

But one I like to mention, actually happened with a personal friend of mine.

In short, I had a buddy who owned a siding company — and even though things were going alright, as he was staying profitable…

He always struggled with cash flow, primarily at the start of jobs — when he needed to buy upfront materials, and didn’t get paid in full…

Until the project was completed.

Like most small business owners, he started off — by asking his local bank…

But after getting turned down right away, because his credit score was “too low” — he didn’t know where else to turn…

Until asking me about my new role, and at first — I honestly didn’t think we’d be able to help him.

Say that, because the only “low credit” product I knew at this point — was a merchant cash advance…

And seeing how he didn’t process anything through a card processor (did everything via check), I knew he wouldn’t be able to get a loan for this…

But I told him I’d ask the alternative lender anyway, and after explaining the situation to him…

He gave me a simple response:

“Oh yeah, he’d be perfect for our purchase order program”.

Now again, at the time — I had no idea what this was, as banks don’t offer it…

So I had to look into it a little more, but after doing some digging — I realized that we actually had a loan product that was essentially designed for him, and in the simplest terms…

What purchase order financing does, is give the funds needed upfront — then not ask for repayment…

Until the job is complete.

For my buddy, this worked great — as that was exactly what he needed…

So after that, we got him approved — and from there, all he had to do…

Was get a contract signed, then send it to us…

Along with the budget he needed to get started.

After that, we’d look over everything — to make sure it sounded reasonable…

Then from there, we’d send him the funding he needed right away — that way he could use the upfront capital to purchase material (and labor)…

Then not have to worry about repayment, until the job was completed — and he received his payment.

With that said, again — there’s a lot of other ways they do this as well…

Like:

  • Invoice financing
  • Asset-based lending
  • Equipment leasing
  • Etc…

But at the end of the day, they have different options — that help different situations…

Which is another huge benefit they offer, that banks don’t.

Anyway, that’s it for reason #2 — and for:

Reason #3 — Their underwriting guidelines, aren’t quite as strict

Okay, so with the first two reasons — the main “benefactor” of this…

Is small business owners, who don’t have the credit score — or financials…

To support a normal business loan.

In that case, those 2 reasons work great — because it allows them to get the financing they need, with creative options…

But at the same time, I’d say that accounted for 60% of the loan requests — and for the other 40%…

It didn’t make sense for them to use those options, because they were able to get a traditional loan — and in that case…

They really loved reason #3, the practical underwriting guidelines.

Now these practical underwriting guidelines impact every traditional product that alternative lenders offer, so please keep that in mind…

But just so you understand what I’m saying, for the most part — the most common way this happens…

Is with SBA loans.

If you’re not familiar with SBA loans, they’re loans — that are partially (usually 75%) guaranteed by the small business administration (SBA)…

And the reason they do this, is because they want to remove some of the risk for lenders — and in turn, loosen up their credit standards…

That way more small business owners can get the loan they’ve been looking for.

Anyway, this is also something that banks offer — but with them, there’s a lot of irony…

Because even though they’re allowed to give SBA loans, at the same time — they still have to follow certain regulations (usually set by the FDIC)…

Meaning that even though there’s less risk for them, they still can’t get too flexible on their underwriting guidelines — and in turn…

Have to turn down most SBA requests, even though on paper — it’s a heck of a deal.

With that said, that’s what happens with bank underwriting — but again, alternative lenders don’t have to follow the same regulations (underwriting wise, still have to follow interest rate regulations and all that)…

Which in turn, allows them to be more flexible — and when combining that with the SBA guarantee…

There’s a lot of times, they’re able to help small business owners get approved for this type of loan — even if banks had turned them down before.

Alright, that’s a general overview of reason #3 — and again, this same logic carries on throughout all their normal loan products…

Like:

  • Line of credit
  • Commercial Real Estate
  • Etc…

Just like to mention this one, as most small business owners can relate — and now that we have that out of the way…

Here’s:

How that applies to you

As I hope you’re starting to see by now, even though nothing is “guaranteed” — as somebody who’s worked with commercial loans in different forms…

Including:

  • Commercial Lender
  • Alternative lender (well, underwriter)
  • Entrepreneur
  • Etc…

I can assure you, if you’re struggling to get a small business loan right now — or just want to explore other options…

Then I highly advise at least looking into alternative lending, or better yet — getting a quote from them…

To see exactly what they can do for you.

Not only do they offer different products that help for all situations, but they also have practical underwriting guidelines – that helps most entrepreneurs out…

Especially if you’re in a bind, so  if you find yourself in that situation (whether it’s because banks won’t work with you, or you simply need funding right away) – then I REALLY advise checking it out…

As it might be the saving grace you’ve been looking for.

Anyway, that’s really all I wanted to mention for today – and as I mentioned earlier…

If you’re interested, the owner of this website/company (Rick Anderson of Small Business Money Solutions)…

Is an alternative lender himself, and if you’d like – you can click on the link below:

To learn about how they fund deals, then after that – if you want to see what they can do for you…

Then he has a short app you can fill out quick, and he’ll take care of everything else after that.

Other than that, if not – no worries…

Just wanted to mention this to you either way, as I know most entrepreneurs never hear about this – and it helps to have a referral you can reach out to…

But either way, thanks again for reading – and good luck with your future ventures.

-Sean Meyer