Small Business Lending – Getting Loans with Debt

The Small Business Lending Ecosystem is getting crowded and more confusing by the day. If you’re scratching your head wondering which is right for you? You’re not alone. To help you out, all this week we will discuss the small business lending world, and the ways in which you can learn more about the system for your own success.

We will share Tracy’s story, and what we did together to figure out the right option for her. You see, Tracy had found herself in a decent amount of debt by this point in her business, and that made getting loans a bit harder. 

Unsure of how to take your business from good to great? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Tracy's Story

Tracy ran a successful catering business. Her clients were mainly corporate and other small businesses, predominately servicing smaller events. As such, Tracy had solid growth. As she grew, her capacity was strained. Consequently, her overtime hours were up. Plus, it was hard to find enough equipment. Tracy rented certain pieces of equipment. Because she was catering more events, we agreed that it was more economical to purchase some key equipment instead of renting them. 

Unfortunately, Tracy hadn’t always been responsible with her spending in the past. Therefore, she built up a fair amount of debt. While her credit rating wasn’t awful, it needed some work. 

How Did We Help Tracy?

First and foremost, Tracy needed to expand. Tracy had her business model down. Her client retention rate was high. As a result, she could accurately forecast demand. Therefore, it was pretty easy to calculate which equipment would be more economical to own versus rent. Now, all we needed to do was to acquire the financing. Preparing the application and necessary paperwork was easy. However, the hard part was finding the right lender for her.

Getting Loans with Debt can be hard

So, which lenders were right for Tracy? How did we choose? Well, Tracy had an established business. It was profitable and growing. We could use the new equipment as collateral to support this loan. But, to obtain the funds, we faced some challenges, namely, the size or the load and her sub-optimal credit score.

Not a Good Fit for a Large Bank

Given these criteria, we explored our options carefully. With her debt load, Tracy wasn’t a good fit for a large bank loan. Plus, she failed to meet the SBA criteria. Therefore, we had to explore alternative lending sources. Tracy needed about $100,000 to purchase the equipment that she needed. Knowing that any lender would view her as a risk, we split our funding strategy into 2 pieces. First, we calculated how much we might be able to receive from the Marketplace lenders. Next, we figured out how we might finance the rest through a Lending Platform. 

Benefits of Being a MWBE

women-owned business has access to programs that wouldn’t normally be available. Therefore, we applied to non-profit lending sources, with low to no interest rates. A quarter of needed funding came from these lenders. For the remaining 75%, we chose use the marketplace lender, Lendio®. 

How Did Tracy Get a Loan with her Debt?

Small Business Ecosystem

Tracy got the funding she needed to expand. As expected, the interest rates weren’t great from the marketplace lenders. However, since we used the non-profit lenders, we reduced their impact. At the time, Tracy hadn’t certified her business as a MWBE (minority or women-owned business entity). We helped her with that application process.  As a result, she is now eligible for more government-based opportunities. With the purchase of the new equipment, her profits increased. She paid herself more and reduced her debt.

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

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