Loans for Small Business with Bad Credit: What Are Your Options?
Are you an entrepreneur looking for a loan? But with bad credit? There’s some good news: for those with anything less than a stellar credit history, getting conventional small business loans might appear nearly impossible.
Not quite, as having bad credit doesn’t mean you have no options. Today, many non-traditional lenders and flexible loan solutions create paths for small business owners with bad credit scores to get still the funding they need.
This guide explores loans for small businesses with bad credit.
Understanding the Challenge of Bad Credit
Applying for loans for small businesses with banks or traditional lenders is like kneeling before a jury. Your credit score holds a score that judges you; the lower the score, the higher the likelihood they will think of you as a risky borrower. This way, it is likely that your application will either be rejected or granted, but at a very high interest rate or with other unfriendly terms.
Some modern-day lenders, however, have gone beyond just concentrating on credit scores and consider a wider image of creditworthiness. When assessing the creditworthiness of a business or organization, factors such as its cash flow, time in business, annual revenue, and growth potential are taken into consideration.
Microloans: An Agile Access Point
Microloans are short-term loans ranging from $25 to $50,000 that are available through nonprofit organizations, community development financial institutions, and some government programs. In contrast to a traditional bank, microloans were designed for newly established or small business entrepreneurs.
As microloan lenders value community development and jobs created, they are less likely to be averse to adverse credit. You may still qualify even with a low score, as long as you present an excellent business case and a reasonable repayment plan.
Merchant Cash Advances
Quickly defined, a merchant cash advance, or MCA, isn’t a loan in the conventional sense of the word. An MCA provides a lump sum up front in exchange for a percentage of your daily or weekly credit card sales. It fits small businesses that receive a steady stream of card payments but don’t meet the criteria for traditional small business loans.
MCAs are enticing to borrowers with bad credit, and in some cases, involve high fees. Low fees-high approval-all this is gained and consumed with caution.
Invoice Financing
Invoice financing is a lending system by which businesses that use invoices as a means of payment to customers can lend the amount while they wait to receive payment from the clients. Therefore, with invoiced financing, you advance funds against outstanding invoices, giving you immediate access to cash.
It can serve as a good option for business with bad credit, as lenders grant loans based on the value of your invoices rather than your credit history. This option suits B2B businesses with longer invoice cycles perfectly.
Equipment Financing
If you want to buy machinery, computers, or any other asset for your business, then equipment finance can help you get that equipment without paying outright, using the equipment as collateral. As with any other type of small business loan based on income-generating activities, this is a risky type of loan because, for lenders, collateral means less risk in terms of borrowers with bad credit and those who are willing to lend to borrowers without good credit.
You might qualify, regardless of your credit score, as long as the equipment maintains its resale value and the business can show ongoing income.
Business Credit Cards
Although not loans, business credit cards might be a lifeline for small businesses short on funding options. Some issuers provide cards specifically for those with poor credit; secured business credit cards are another option, which require the applicant to put down a deposit before receiving a credit limit.
These cards can be of use during emergencies. They can also be utilized appropriately to build on your credit history, proving that your small business is a viable candidate for funding.
Online Lenders and Alternative Financing
The online lending space has redefined accessibility to capital. Many fintech operations specialize in lending to businesses with low credit, employing advanced algorithms that consider multiple other factors in addition to credit.
SBA Loans via Micro-lenders and Intermediaries
SBA loans for small businesses usually require good credit. But exceptions exist. With SBA Microloan programs, those approved intermediaries can issue loans to borrowers of up to $50,000 even if the borrower has bad credit.
Improving Your Approval Odds
Securing loans for startups with bad credit may not be easy, but with proper planning, it’s doable. Some of the ways to improve your chances are:
Organize your finances: Prepare comprehensive documentation to include tax returns, cash flow statements, and a clear business plan. The more lenders see your creditworthiness, the more they will be comfortable with your ability to repay.
Conclusion: Bad Credit Isn’t the End of the Road
Bad credit does not necessarily have to keep you away from securing small business loans. In today’s lending universe, flexibility and opportunities are more than ever. Small microloans, invoice financing, or online platforms can be used to acquire working capital and grow your business.