Bad credit is not forever but it’s a stumbling block for some looking for viable business funding. If you’re an entrepreneur with a sound business plan but with a not-so-stellar credit rating, consider these sources of funds and loan types to help get your business up and running.
Business Funding: Traditional vs New Sources
From traditional banks, alternative lenders to loved ones, you have quite a list to cover when looking for business financing opportunities despite your bad credit.
Banks: a source of traditional business financing. It can be pretty tough to get a traditional bank loan because of stricter underwriting standards, credit score included. But they may have loans that cater to individual business owners with low credit ratings. Contact a bank near you.»
Credit unions: like banks but are not run for profit. They are not-for-profit cooperatives that provide financing and related services to their members. They offer loans at lower rates and fewer fees. If you’re a member of a local credit union, you may consider it as a potential source of business funding.
Web-based lenders: an alternative to America’s brick and mortar banks because they can be lenient when it comes to credit scores. They provide access to a range of investors who will lend the money. Rates may be lower than traditional banks but could be at credit card rates level.
Micro-lenders: operate like peer-to-peer lenders. Microloans are designed to launch small businesses in developing countries. And in developed countries like the U.S., they provide financing to entrepreneurs with bad credit. The U.S. Small Business Administration offers micro-financing of up to $50,000, with microloan grants averaging $13,000.
Lenders near you: include friends and family members. These people won’t certainly scrutinize your credit score when you come looking for extra funds. Don’t underestimate loans from your kith and kin as they have helped more than half of today’s business owners get financing.
Non Credit-Based Business Loans
There are loan programs whose qualifications are not solely based on the business owner’s credit standing. Eligibility for those loans depends on which stage your business is in.
Revenue-based loans. If you’re looking to hire more people, launch a product, or expand your marketing but iffy on guaranteeing a loan or sell equity, you can turn to a loan with a fixed repayment scheme offered by revenue-based financing. These loans are designed for companies with established revenue streams, established market and finances in order.
Merchant cash advance. If your business transacts a large volume of credit card transactions on a daily basis, you can tap a portion of those future sales in the form of a merchant cash advance. While requirements vary among lenders, they could require a minimum operating history, e.g. six months and a minimum threshold for credit card sales, e.g. $3,000.
Business credit cards. They are credit cards designed for small businesses. Whether it’s for new computers, additional inventory or cash advance, business credit cards offer the flexibility of business spending.
The choices for loan programs that you have for the moment may not be as varied or readily available. But, if you make timely payments on your loans and regularly pay off your credit card balances and ensure all these get reported to the credit bureaus, you can have meatier choices next time.
Use your business sense to source out lenders and loans. Start shopping and comparing business loans.»