Can High Interest Loans Help Small Scale Business With Bad Credit Score

Bad Credit high interest loansBanker is typically one who is willing to lend money to those who do not need it. Once you have fallen on bad times and have bad rating loans come with higher rate of interest from the non-banking institutions. These finance institutions are out there to survive and thrive. The number of fees such as, guarantee fees, origination fees, servicing fees or the loan-packaging fees, etc. add up to the cost often making the whole loan unviable.

22 October 2014, Surrey BC: When your credit it is not at its prime and you need to take out a business loan, it sure comes at a far higher price. Though the high interest business loans are a risky, yet more than often, crunch of cash flow makes it difficult to keep the business up and running.

The finance and legal matters experts of thedollartimes.com have some genuine advice to help you decide if taking out a high interest business loans will make you or break you.

The love-hate relationship: We all love that extra cash but we also have a general bad feeling about taking that extra edge of credit especially when your credit is not good.

The reality as we all know is that a higher interest loan comes from the non-banking institutions. These finance institutions are out there to survive and thrive. The number of fees such as, guarantee fees, origination fees, servicing fees or the loan-packaging fees, etc. adds an extra burden on the small and medium scale enterprises. Money attracts money and small loans as such attract higher rates.

Why do lenders differentiate between small-medium enterprises and large-scale industries?

The small and medium scale enterprises do not have much of collateral to offer. Though the potential to make it big lies more at the small scale industries the high failure rate is not very attractive when it comes to lending. Small loans cost almost the same to the lenders as the large scale business loans– the processing cost is rather higher in smaller loans thus, financial institutions face higher transaction charges for small loans where as the returns are not so attractive. Small businesses loans are tricky securitize and are sold on the secondary market as well.

What is the one suggestion that each small and medium enterprise must abide by while taking a loan at higher rate of interest?

Two things must be considered while taking a loan at higher rate of interest. First, what is the purpose of the loan – is it for growth and development or for survival? If the loan is for growth and development that is projected based on the past performance, present conditions and future prospects then it may be a wise option. The borrower will be able to repay the loan and even improve his credit score. However, if the loan is to fill in the dark hole of liquidity crunch that the business is going through, in that case, it is better to steer clear. It will form a vicious circle that will further drown the borrower.

The second point worth considering is – always compare between couple of options before you opt for a suitable one. Small-scale businesses have a number of issues to deal with and there is no point in adding more to them. Compare rates, charges, lock in period, etc so that you choose the best option that helps you come out your present situation.

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