Bad credit is the biggest financing hurdle for small businesses. It is one of the most common grounds for traditional banks rejecting small business loan applications. But all hope is not lost for those seeking small business loans with bad credit. In this article, we’ll tell you about the options you have to get the funding you need despite the bad credit.
Financial lenders consider bad credit loans a credit risk. Credit score is a measure of your creditworthiness. To them, a bad credit score signifies a high risk of defaulting on the loan. The worse your credit scores, the higher the risk. And the higher the interest rates are likely to be.
Many lending institutions and credit unions are more understanding of your predicament. They are more lenient about your credit score and credit history.
These financial lenders are willing to advance small business loans to you but they often come with caveats. The caveat may be higher fees or higher interest rates to balance out the higher risk involved in lending to businesses with bad credit.
You get access to the money funds you need irrespective of your credit score. It does not use the traditional credit score to decide eligibility for loan. Your future credit sales determine the eligibility of business cash advance. Here the repayment is via small deductions from the future credit card and debit card sales.
What Are Your Options for Small Business Loans with Bad Credit?
Big banks usually reject your small business loan application if you have a credit score below 600. While bad credit makes it hard to get small business loans from traditional banks, here are some of the options for bad credit loans you may consider.1. Family and Friends
Before you go out to look for a financial lender, consider asking your friends and family to support and invest in your business. If you are a new business or just starting out, getting a loan can be very difficult since you do not have a credit profile. And you probably need a lot of cash to establish your business. It is always a great idea to ask your inner circle of family and friends to invest in your business. This is great because you these people will most likely not consider your credit score or charge very high interest rates.2. Business Credit Card
Not all small businesses need loans for large sums. Most small businesses are short of working capital from time to time. The unrealized debtors or payments imply the small business is short on funds. The best way to meet these short term cash crunch needs is using a business credit card. If you are eligible and qualify for a business credit card, you’ll have a ready source of cash. The lender issues the card in the name of your business. The credit limit, terms of payment and interest rates will vary depending on the lending bank or credit union.3. Business Cash Advance
Also commonly called the merchant cash advance. This option is ideal for those small businesses that are facing cash flow problems. It is usually offered at a very high interest rate. Small businesses that are find it difficult to get a small business loan due to bad credit can opt for business cash advance.Bad credit is the biggest financing hurdle for small businesses.
You get access to the money funds you need irrespective of your credit score. It does not use the traditional credit score to decide eligibility for loan. Your future credit sales determine the eligibility of business cash advance. Here the repayment is via small deductions from the future credit card and debit card sales.