If you prefer to explore funding opportunities that do not require a credit check, there are still plenty of options. Each type of funding, though, can have different requirements, terms, and rates, so it’s important to evaluate each on what the repayment burden means for your business before making your decision.
How Business Loans Work
Business loans are a crucial element to both large and small businesses. At different points in the life of your company, you may need some extra working capital. Or perhaps you’re looking to scale in a way that’s only feasible with a sizable investment in equipment or real estate. In cases like these, business loans can be an important component to your financial plan and can create a helpful safety net as your company grows. The first step to securing a business loan is to assess your financial history and viability. Lenders may want to see your personal and business credit scores (if applicable), any collateral that may be used to secure the loan, and financial statements showing the health of your company. In almost every case, a bank will check an applicant’s personal credit history. Certain banks will not consider applicants with personal credit scores less than 650 or 700, so it’s important to have an idea of your credit health before beginning the loan application process. Once you apply, the bank or lender will pull your credit history, usually using a hard credit check, which is when a lender requests to review your credit reports once you’ve applied. If approved for a business loan, you’ll receive the specific terms, interest rates, down payment (if any), and penalties associated with your loan. However, if traditional loans aren’t the right fit for your business, there are still many options for securing funding, as outlined below.
PayPal Working Capital
One of the best places to look for a capital infusion without a credit check is with your payment processor. If you’re one of the more than 30 million businesses that use PayPal, you will likely qualify for a working capital loan.
Loan limits: Loans are based on your PayPal account history. A business can borrow up to 35% of its annual PayPal sales. First-time borrowers can borrow up to $150,000, and subsequent loans max out at $200,000.Rates and fees: Borrowers will pay a single fixed fee determined by the loan total, PayPal history, and the selected repayment percentage. Borrowers can select 10%-30% of daily sales as the rate for paying back the loan.Term length: There is no maturity timeline; the loan is repaid once the balance and fixed fee have been repaid using the selected percentage of sales.Eligibility: Applicants must have a PayPal Business or Premier account for at least 90 days, and process at least $15,000 in annual PayPal sales for Business accounts or $20,000 for Premier accounts.
PayPal working capital loans have no effect on your credit score, require no collateral or personal guarantees, and application and approval should only take a few minutes. It’s worth considering if you are in need of gap funding and are sure future sales will support the repayment requirements.
American Express Working Capital
American Express offers a variety of programs aimed at helping small businesses maintain positive cash flow. While some, such as AmEx Merchant Financing, require a credit check, the American Express Working Capital option allows current customers access to bridge funding without dinging your credit. Here are some specs:
Loan limits: $1,000 to $750,000Rates and fees: 0.5%-3% depending on the length of the loan term, payment, and purchase history with AmExTerm length: 30, 60, or 90 daysEligibility: Must be an active American Express Business Card holder who uses their card relatively frequently; vendors or customers must be set up to accept American Express.
American Express Working Capital is aimed at creating flexible options for positive cash flow. If your timelines for accounts payable and accounts receivable do not align, AmEx Working Capital can keep you in good standing with your vendors and allow you to maintain positive relationships with your customers. With this option, businesses never see loans in their bank accounts. Instead, if vendors are set up to accept American Express, AmEx will pay your vendors directly within five days. You then have 30, 60, or 90 days, depending on the term of your loan, to collect funds from your customers to repay the loan. Approval for these funds is generally easy and does not require a separate credit check. However, the loan amounts plus associated fees must be paid in full at the end of the relatively short term, which can pose a problem if your receivables are not up to date.
Square Working Capital
Square has become a popular point-of-sale and payment processor for small businesses since launching in 2009. While the company formerly offered flexible merchant cash advances, it now offers small loans called “Square Capital.”
Loan limits: $300-$250,000, depending on your history of sales with the Square platformRates and fees: Square enacts a one-time fee of, on average, 10%-16% of your loan; exact fees and repayment rates are determined by the amount you choose to draw.Term length: Loans must be paid in full within 18 months.Eligibility: Must be a Square customer with relatively high processing volume, usually at least $10,000 per year
Once a business shows a steady processing volume with Square, it is offered a range of capital it can choose whether or not to collect. The exact fees and repayment rates are determined by the amount a business elects to take, but that burden is made very clear before committing to the loan. These sliding rates are because the loans are designed to be paid back within 15 months regardless of how much a business chooses to take. Daily sales repayment burdens can be hard for small businesses when it comes to managing their cash flows, so Square Capital may not be the best fit for smaller companies that have irregular cash inflow and outflow. If daily sales are not where you expect them to be, there is an option to pay a minimum payment of one-eighteenth of the loan every 60 days, although the loan will still need to be paid in full when it matures at 18 months.
FundThrough
If your business relies on invoices to meet cash-flow requirements, consider invoice factoring or invoice financing. FundThrough offers two options for using your invoices as collateral: Velocity Invoice Factoring, where customers sell their invoices in exchange for immediate funding, or Express Invoice Financing, which is a loan that uses your open invoices as collateral.
Loan limits: Loans are based on the amount of eligible invoices and business cash flow.Rates and fees: For Velocity Invoice Factoring, rates depend on how old the invoice is, and range from 2.5% to 7.5% deducted from the advance; the sooner an invoice is due, the lower the fee. Express Invoice Financing is typically 6%, or .5% every week for 12 weeks.Term length: 30-90 days depending on the invoicesEligibility: Velocity Invoice Factoring is for businesses with $15,000-$10 million in open invoices, and Express Invoice Financing is for businesses with $500-$15,000 in invoices. Invoices must be less than 90 days old.
Neither option affects your credit score, so they are worth considering if you operate an accounts-receivable-based business. When you sell your invoices via invoice factoring, you run the risk of your customers having a bad experience dealing with a third party collecting—although FundThrough has a great reputation for customer care. With Express Invoice Financing, you are responsible for the whole loan, so you need to stay on top of your accounts receivables to ensure you have the cash flow to pay back the loan via the 12 weekly installments. This might not be a good fit for companies that primarily serve customers who have trouble paying on time.
