High risk business loans are wrought with so many disadvantages that only the business people in desperate situations would consider them. The situation the borrower is in is always very clear to the lender and some have no qualms about taking full advantage of it.
Features of high risk business loans
One of the most unpleasant features of high risk business loans is that they tend to be very expensive. The lender normally feels that he’s assuming a big risk and to guard against the possibility of losing all the loaned money when the borrower defaults, he tries to take as much as possible back in the shortest time possible. The interest rates for these loans are therefore normally higher than those charged on low risk loans.
The repayment periods offered on high risk business loans are also relatively shorter than those offered for less risky loans. This combination of high rates and short repayment periods normally mean that the entire loan period might be very traumatic for the business owner.
While you could obtain an unsecured high risk loan, most such loans are secured. When you can provide some collateral, some lenders are willing to offer lower interest rates than those charged to people without collateral. Of course securing your loan with an important asset comes with its risks. Business is generally unpredictable and in the event that you are unable to repay the loan money the lender will have no option but to sell the security you offered. People securing their high risk business loans with precious assets take a particularly big risk as some lender actually have an eye on the asset used to secure the loan and will dispose of it at the slightest indication that you are having trouble paying.
Avoiding the risks
If you run a business that accepts credit cards and have been in business for a period of six months or more, you have no business going for a high risk business loan. A search online will show you that you have a more friendly source of funds in the form of merchant cash advances. With providers of merchant cash advances, your credit history or your ability to provide collateral is not important. All the provider wants to confirm is that the frequency of your credit card sales is good enough to make you make a profit from which you can commit some money to settle the money advanced.
To decide how much to lend you, the merchant cash advance provider takes your historical credit card sales into consideration and uses that to project what your future sales are likely to be. The amount you could obtain in the form of an advance under this arrangement will vary but it could run into several hundred thousand dollars.
With a merchant cash advance, you take no risk of losing any of your precious assets as none are used to secure the advance. Moreover, you are under no pressure whatsoever from the lender. A cash advance is only payable when you receive payments for your credit card sales and unless you realize such sales you are under no obligation to pay anything. Even in the unfortunate event of your business folding up, the entire cost of any outstanding cash advance will be borne by the lender.
Rather than take high risk business loans which could also have the effect of messing your credit rating further, you should consider using a merchant cash advance as whatever happens between you and the lender has really no bearing on your future credit reports.