Can People With Bad Credit Receive a Business Loan?
There are many reasons cited as to why small businesses fail. Many of these reasons revolve around financial management. While businesses need to have:
- Great products
- A unique selling point
- Great Marketing
Without sound financial management, statistics suggest the risk of failure is high.
Entrepreneurs need to be conscious of how funds affect the running of their day to day business. Without capital, entrepreneurs will find it hard to turn their ideas into a profitable venture. Access to capital can be challenging for small businesses that have not developed a good credit rating.
Even if the business started out with adequate capital, the business owner has to prepare for the unexpected. Good financial planning is necessary to:
- Avert a business ending crisis.
- Reduce the impact of unforeseen circumstances.
Entrepreneurs also have to prepare for growth; as orders from customers start coming in, the business needs to be in a position to fulfill them in a timely fashion if it is to be successful.
It is very critical for companies to manage their working capital if they are to sustain their operations and effectively deliver to their customers and pay their suppliers. Working capital addresses the short-term financial needs and involves maintaining a healthy balance between current assets and current liabilities.
Working capital is calculated by simply deducting current liabilities from current assets. Current liabilities can be defined as the debts that the business is obliged to pay within one year. On the other hand, current assets are the assets that the business can convert into cash within a year and may include prepaid expenses and accounts receivables.
The working capital ratio can be calculated by dividing current assets by current liabilities. Accounting experts believe that the ratio should be kept between 1.2 and 2.0.
- Anything below 1 means that the business has more current liabilities than current assets and may have problems paying creditors.
- If the ratio is over 2, it means that the business is not utilizing its current assets effectively.
If you find that your working capital ratio is low, you can still get financing even if you have a low credit score. Some companies like PayPal can provide up to 18% of your past year’s sales for those with business or premier account and can make manage between $15,000 and $20,000 in yearly sales.
Small Business Finance Providers like Meridian PO Finance:
Provides Accounts Receivable and Purchase Order financing for businesses trying to manage their working capital. You don’t need to worry about your credit score, as long as you have good and reliable customers you can secure up to 100% financing against your invoices in a matter of hours.