Banks and traditional lenders often work within stringent guidelines, with limited flexibility. These parameters can sometimes be problematic for small business owners who are looking for capital to invest in their business or for personal use. Getting a business loan from a bank or traditional lending institution is a detailed process that requires documentation such as financial statements, business plans and financial projections to name only a few. The risk assessment can take several weeks and sometimes months to know if you are approved.
Additionally, even if your business is sound, you may not get approved due to your personal credit score, insufficient credit history, lack of collateral, low growth, or any number of reasons. And in times of economic crisis like the present, rigid lending criteria will deem many small businesses as unworthy of additional financing to pay overhead expenses, make payroll to keep employees, temporarily halt operations because of new COVID restrictions, or bridge a short-term loss. This time consuming process is one of the reasons small business owners and entrepreneurs may opt to use the equity in their home to finance their business.