But where to get credit online for small business? Often, sole proprietors (IPs) and private enterprises (PPs) do not have sufficient liquid collateral to take out a bank loan. In addition, if a small business is a young startup who most needs borrowing money for a quick “promotion”, entering the market, then he falls under the credit restrictions of banks.
Why so? Because banks are primarily interested in the interests not of the business but of their own credit risks. In terms of banks, the “young” business is too risky to lend to it. Therefore, under existing restrictions, the state registration of an IP or a PP should be at least two years (such as a common banking practice).
What should an entrepreneur do? Identify yourself in banks as an individual? But then for a large amount of credit in the bank, without the presence of collateral property – do not count. And the amount of credit that a bank can rely on without a mortgage on an individual is usually not enough in the interests of business development.
But start-up businesses that do not have the opportunity to “start” and “promote” their business “fat pad” at their own expense, as well as other small business representatives – should not be discouraged. The current financial and credit market is quite diverse, and practically everyone on it will be able to find a loan product for their needs.
Conditions for granting a loan to small business in banks
In classic (network, retail) banks undoubtedly councils of representatives of business, including small. After all, the most important parameters for assessing credit risks (identification, financial status, operating activities, solvency) are much easier to trace and analyze than the same parameters in individuals. Thus, especially for individual entrepreneurs and small private enterprises in large and medium-sized network banks, there are numerous programs for granting loans to small businesses without the presence of collateral property, the main features of which are:
- increased (compared to conditions for individuals) bank loan amounts, from 50 thousand dollars and above (on average about 300 thousand dollars);
- renewable overdraft lines of credit.
But small business executives who want to deal with banks should be prepared to ensure that, before deciding on a loan, they will be required to carry out a very thorough (documentary, factual) verification of their current availability, operations and financial condition the legal person – the applicant. To do this, along with the loan application, to study and analyze the bank must provide:
- title documents for IP or PE (state registration certificate, ownership documents);
- financial and tax reporting for the last year, some banks – for two years;
- statement from the current account for the last six months, some banks – for the last year;
- Certificate of BKI on the absence of credit debt on a legal entity for previously taken loans;
- among other things, other documents may be required as required by the particular bank.
Often, a bank that lends to a small business requires that it transfer its operating activities (open a settlement account) to a lender bank. This is due to the need to minimize credit risks, but at the same time also aims to increase the profit of the bank (due to the payment of bank servicing of the enterprise).
However, the documentary verification of the IP or PP status of the bank to the applicant is far from exhausted. Most likely, the bank will be assigned (and conducted) the current inspection of the availability of production, warehouse or office premises of the PP at the place of its registration, carried out in them activities in accordance with the profile, the presence of residues of products or goods in the warehouse, and other issues.
Thus, making a loan to a small business at a bank translates into a significant expense over time, sometimes making more than one business day. In today’s business environment, when decisions are made and business operations are conducted most often in a matter of hours, such as low efficiency of banks to lend to small businesses can be considered unsatisfactory.
After all, in what cases can the credit-financial interaction of small businesses with banks be justified? Undoubtedly, in the case of large-scale investment business projects that require one-time significant financial investments. For example, such as the purchase of cars, special equipment, production equipment, commercial premises, large lots of goods, etc.
Fast loans to small business
What should a small business manager do if they need money very urgently to close the temporary cash gap? And at the same time at the bank would you agree to bypass the established procedure to go to him for a meeting?
For such emergencies, an entrepreneur should apply for a loan from one or more microfinance institutions (MFIs). Thus, the loan amounts for small business MFIs are quite limited, only about 20 thousand, maximum, 30 thousand dollar. This is usually not enough to support business processes, eliminate cash gaps, even within the framework of individual entrepreneurship, not to mention a viable PP. But if you apply to several MFIs at the same time, you can end up with a solid amount sufficient to solve the already serious operational business challenges.
MFI’s main advantages over banks:
- exclusively machine (software) processing of information declared by the applicant remotely, via the Internet, from any location (without obligation to visit the MFO office)
- the simplest and most accessible procedure for applying for a small business loan, which involves only the process of identifying an applicant without the process of verifying his solvency (at least in explicit form). As a result, MFI micro-loans become available to even the youngest business start-ups, with poor financial condition and volatile operating activities, which would necessarily be denied credit in classic banks.
- very high speed of consideration of the loan application and small business loan, which is based on two previous factors.
Critics will say that MFIs have too high interest rates on loans? This is true. But no one is calling for small business MFIs to lend to long-term investment projects. It is optimal to do a maximum of several days or weeks, to eliminate cash gaps, purchase of urgently needed materials, without which the production activity of the enterprise will cease, in other urgent cases, when the cash flow movement is important not less than their current volume.
And the speed, which is the speed of deciding on a loan application and the speed of granting (crediting) a loan to small businesses, in most MFIs is simply impressive. A common “standard” for many MFIs is to consider a loan application and credit card money within half an hour. Such high efficiency in granting loans to small business and causes the high popularity of MFIs among its representatives who willingly use the services of MFIs to solve urgent and urgent business problems.