Working Capital Daily Recap is a series where we review the top reasons business owners do not get approved for the business funding that they are looking for, why they do not get the business loan terms that they were hoping for, and situations they can avoid when looking at financing their small business or startup.
Today we are going to discuss whether you should lock your credit when applying for business funding, what you must be aware of before you apply for financing, and what you can expect when you're applying for a renewal/refinance merchant cash advance.
#1 Situation Today
There was a business owner that did not want to unlock/unfreeze his credit. Basically the business owner was told before by previous business funding companies that there would only be soft pulls on their credit, but the business owner ended up finding inquiries on his credit report anyway.
Locking your credit is a process that you can do relatively easily by calling the major credit bureaus or going online and answering a few questions about personal info. Typically people do this to avoid identity theft, and although we recommend it for this reason, when applying for any type of credit or financing, you should make note that we cannot process your funding application with the freeze on, and you must unfreeze your credit in order to proceed, and a good rule of thumb is to have it unlocked before you apply.
#2. After signing their loan documentation, a business owner informed us that they did not wish to proceed because they wanted to pay off their other merchant cash advance positions first. We understand these circumstances, and there are no penalties to cancel after underwriting has underwritten your file, before you get funded. We try to be as transparent as possible during the funding process, we believe this makes for an easy and stress-free transaction. So once the merchant told us this, we replied that it is of no worries, and wished them luck. They didn't need the financing at the time.
#3. A merchant was surprised on their funding renewal when the same lender that had funded them previously was coming back with similar or higher rates. While we strive to give the most competitive rates possible, it is important that you monitor your file for changes during, before, and after you pay off your funding. In this case, the business owner's business actually declined - and got worse throughout the months. Therefore, they got a similar style refinance program on the second go around. Be assured that this is normal, it depends on your company's financial strength - so do not view this as not "standard" for commercial lenders.
We hope you enjoyed today's post, gave you a fresh perspective, and until next time!