One of the qualifications of getting a loan from a bank is that you should have a good credit rating. This sometimes limits some business owners looking for additional sources of finance. Unlike personal loans which need a high credit score, you can get other types of loans to fund your business. You need to consider other options outside traditional lending.
Most lenders consider any numbers below 620 as bad credit. It can come out of making late payments or even facing foreclosure or repossession. A lot of negative data in your credit report lowers the credit score. Apart from your personal credit score, your business can also be a victim of bad credit if you don’t meet your credit obligations.
Though you can get business loans with poor credit, you should be ready to pay more than a person who has a good credit score. Most times, the credit score is tied to your interest rate. A bad score increases your borrowing cost due to high-interest rates. Embrace yourself with all the relevant financial documents to prove that you can repay the loan. You can present collateral to act as security and show the lender a consistent cash flow.
To get a business loan with a poor credit score, you must also prove to the lender that you have been in business for a minimum of one year. Consider getting a microloan for your small business. It is easy to qualify for a microloan and get a small amount to fund your business. You can get a microloan from the small business administration to use it as working capital or purchase inventory.
Non-profit organizations and some credit unions also offer microloans to entrepreneurs with bad credit. They are however strict on how you should use the loan; thus, you cannot use it to meet all your business needs. You can also get a microloan from some online platforms.
Another loan option when you have bad credit is the merchant cash advance. This is a financing option that allows you to receive cash within a short period. The lender of merchant cash advance gives you money hoping to receive it back after you make sales. You can settle the loan by facilitating the periodic transfer of some amount from your bank account.
Invoice financing also lets you receive money from invoices that have not been paid for. A lender buys your unpaid invoices and gives you a percentage of the money owed as an advance. They hold on to a portion of the total amount until your client pays the invoice. Before approving you for invoice financing, the lender focuses on the payment history of the client to assess their likelihood of paying the invoice on time.
The payment timing is what determines the interest rates that the lender sets. The loan accrues weekly fees until you repay it. You can also ask for financial help from your family and friends. If you borrow from more than one person, be prepared to repay multiple loans. Ensure that the loan agreement is in writing to avoid conflicts with your loved ones.