Small businesses are a very important aspect of any nation’s economy. The small-scale businesses are regulated and governed by many laws and regulations. These businesses are also exempted from some of the taxes and regulatory obligations. The loans for women are granted by banks, financial institutions, and lenders, in order to facilitate business models that have been developed and initiated by businesswomen who have a bad credit.
Here, the term ‘bad credit’ implies that these kinds of loans are granted to businesswomen who have a very low credit rating. Credit rating and score are two units that are used by lenders, to estimate the worthiness of a particular person. Credit rating agencies, supply the lenders with a person’s credit related records and history. The rating is an alphanumeric figure, derived from all credit related activities of a person. These ratings are derived from prescribed formulas, which are regularly governed by concerned government agencies. Thus, the rating is influenced by late installments and defaults. Credit card debts, loans, and for that matter any activity that is related to credit, is included in the rating. The score is a variant of the rating. A score, also depicts a time period within which the borrower will be able to repay the loan, depending upon the loan amount and income of the borrower.
In case of small business loans for women there is no specific prescribed rating or score that qualifies them for the loan.
Effect of Bad Credit
There are certain negative effects of bad credit, as the rate of interest that is levied on the loan is particularly high. A high rate of interest means that the amount of a single installment is bound to be sky-high. Another negative effect is that the loan is bound to be a secured loan, meaning that the borrower will have to pledge an asset, to get the loan sanctioned. The collateral means that the lender is authorized to take over the asset in case of a default. In addition to that, even a single late payment of an installment results into severe negation of the rating. In short, the small business loan can be a bit risky if the businesswoman running the business makes a late payment.
Variants of the Loan
There are several variants of these loans. Some of them have been specified as follows:
- Unsecured Loans: The small business loans are usually secured ones. However, in some cases, it can also be an unsecured loan, if the business model is very successful and has high yields.
- Venture Capital: This type is again provided for very good business models. Venture capital is a very good way of promoting entrepreneurship. In this type, the entire business is financed by the lender and many aspects are also in control of the lender.
- Consolidation Loans: In some cases, businesses get into financial difficulties, which sometimes are also an explanation for the bad credit. In such cases, these loans are granted as debt consolidation loans.
Small business loans, in most cases, are granted to help women set up their own business and get it running. They have gained wide acclaim in countries that have a very rigid social system and underdeveloped small businesses.