why is it so hard to get a loan
Consider using a bank. This is where most business owners are going to turn first, and with good reason. Banks typically offer the largest lines of credit with the best repayment terms, but are among the most risk averse lenders. Therefore, if you are applying for a business loan with bad credit, take steps to maximize your chance of success:
Be prepared to offer collateral. Particularly if you have a low credit score, banks may want some sort of collateral, like real estate of heavy equipment, available to secure the loan. If you do not have that type of collateral, then make sure that your look as strong as possible. You may be eligible for accounts receivable (AR) financing. This means you can use the money owed (but not yet paid) to your business by customers as collateral for a loan. Factoring is another option similar to AR financing. Factoring entails the actual sale of AR for a discounted face value, instead of pledging it as collateral. You may also be able to get inventory financing from the bank, which is a loan given to purchase products to sell. The products, or inventory, themselves serve as collateral â if you cannot repay the loan, you will have to turn over the product to the bank, and the bank will sell it to try and recoup their loan. Show past profitability, and to describe a for future profits. Even if you aren't profitable now, showing a plan for making a profit can go a long way. Start small. Start by making small loan requests as it will increase the odds of success. A track record of successful small loans sets you up for getting a larger one down the road. Lloyds TSB has changed the way it prices loans. Rather than advertising a rate which is offered to the majority of successful applicants, it has moved to a personal pricing strategy. What is personal pricing? Personal pricing means would-be borrowers will no longer be able to see the typical rate being offered by the bank Á theyÁll have to apply to find out what kind of deal theyÁll be given. Those with good credit histories will be offered the most competitive rates. But if the bank thinks thereÁs a risk you could default on your repayments, youÁll be charged a higher rate of interest. This isnÁt unusual. Lenders always run a credit check when assessing a loan, credit card or mortgage application. However, most advertise a ÁtypicalÁ rate Á this must be offered to at least 66% of successful applicants, which at least gives you some idea of how much the loan will cost you before you apply.
However, by moving to personal pricing, Lloyds TSB will stop advertising a typical rate. Borrowers (who must also be existing customers) will have to apply in order to see what kind of deal theyÁll be offered. And every time a credit check is made on you, a mark is left on your credit file. Recently, a Treasury Select Committee criticised the way the market works Á even among lenders that advertise a typical rate. Multiple credit applications can have a negative impact on your credit score, making it harder for you to shop around for the best deal. You can read more about that and the committeeÁs concerns in our article Á Á. Without even a typical rate to guide borrowers, Lloyds TSBÁs latest move may make it even harder for customers to find the best deal. Tim Moss, moneysupermarket. comÁs head of loans, is worried about the effects this could have on the market. ÁThis is going to mean many borrowers end up blindly applying for a loan. Lots of people prefer to apply for a loan through their current account provider because they trust whoever they bank with to give them the best deal. ÁLloyds TSB may well be offering some customers the best loans rate but they wonÁt be able to check that before they apply. I canÁt help but think this is a real step back for consumers and the loans industry. Á ItÁs not all bad news for those looking for a loan. Nationwide has just unveiled its new with a typical annual percentage rate (APR) of just 7. 6%. However, there is a catch. In order to qualify for NationwideÁs market-leading deal you have to have a current account with the building society. As mentioned above, Lloyds TSBÁs loans are also only available to current account customers and weÁre seeing an increasing number of providers adopt this approach. The reason for it is that they have an existing relationship with these people so can make a better-informed lending decision as the bank or building society already knows how they manage their accounts. So what are the other options? There are still some competitive deals out there that donÁt require you to have an existing relationship with the lender. For example, if you have a really excellent credit score then is offering a typical APR of 7. 8% on loans between áå7,500 and áå14,950. are offering a rate of 7. 9% on loans above áå7,500, but you must have a Nectar card to be eligible. However, theyÁre free and can be applied for online. is also offering a competitive rate on loans between áå7,500 and áå15,000 of 8. 4%.
Again though, youÁll need an excellent credit score to qualify. Check out our for more leading deals. Could a credit card be better? Of course, depending on the amount you would like to borrow, a credit card might be the better bet. ThereÁs greater flexibility when it comes to repayment and there are even some introductory interest-free deals. However, as part of the fall-out of the credit crunch, many providers have reduced the amount theyÁre prepared to lend on credit cards. If you have a good credit history anything up to áå3,000 should be ok. But if you are looking to borrow more than that, donÁt bank on a credit card as you may not be offered a high enough credit limit. What are the best deals? If you are looking to consolidate existing debts, then go for a balance transfer offer. has the longest 0% period at 16 months, although youÁll be charged a balance transfer fee of 2. 98%. Alternatively, and offer credit cards with 15-month interest-free balance transfer deals, although theyÁre only available to existing current account customers. The transfer fees on these cards are 2. 9%. For more leading balance transfer cards, read our article Á Á or visit our. If the reason youÁre looking to borrow is to fund a purchase, then TescoÁs Clubcard Credit Card has a 12-month interest-free period on all spending, while doesnÁt levy interest on purchases or balance transfers for the first 10 months and has a nine-month 0% offer. With 0% deals, itÁs important to pay your debt off during the interest-free period as the interest rate shoots up once it ends. If you wonÁt be able to do that and are looking to borrow over a longer period, consider a low-rate card. has just launched a new product which charges 5. 9% for life Á it only applies to balance transfers though, not purchases. If you want to apply for a loan or credit card, itÁs sensible to get hold of your credit file and see how you score. This allows you to correct any false information and also to assess how likely you are to qualify for deals. A new moneysupermarket. com service allows you to to find the best place to see your report. If your report isnÁt up to scratch, read our article ÁCould you improve your credit score? Á for some tips. Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.
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