Borrowers with good credit scores tend to qualify for loans with favorable terms and low-interest rates. However, not all people have good credit standing. Some may have had a period of unemployment, making paying bills on time challenging. Others might have made financial mistakes in the past, which led to hurting their credit scores. On a positive note, this does not mean these people don’t have any chance of getting a loan.
Funding Options Small Business Owners Can Get Even With Bad Credit
Below are loan options for small business owners with bad credit that are worth considering:
If you need funding for equipment to keep your business running, equipment financing is a smart choice. Equipment financing can help you purchase or lease the equipment your business needs. Moreover, this type of loan has a fixed payment schedule with a fixed term.
Lenders who offer equipment financing most likely charge fixed interest rates. Also, the application process is less stringent. This is because the lender may have the right to repossess the equipment if you fail to repay the loan.
Business Credit Cards
Business credit cards are excellent, especially when your business wants to improve cash flow. They are usually offered to businesses that have low or bad credit. However, the APRs might be higher than those who have good or excellent credit scores. On the bright side, making on-time payments to your business credit card will boost your credit score.
Short-term loans are types of loans that have a shorter loan term. This includes loans payable within three years or less and lines of credit that are payable within a year. Moreover, tons of borrowers choose this type of loan, especially if they need to get some cash in a hurry.
Short-term loans are an excellent option for those with bad credit because lenders tend to consider cash flow more than a credit score. Hence, as long as you currently have enough reserves and revenues, your loan application is most likely to be approved.
Microloans can help you get funds up to $50,000. But, if you have a bad credit score, it can be smaller. The Small Business Administration is responsible for this type of loan. Furthermore, the SBA usually partners with non-profit organizations in realizing their services.
This type of loan can be used for several purposes. This includes working capital, inventory, new furniture, building repairs, and even equipment financing or leasing. Moreover, it is vital to know that each lender has different criteria when applying for a microloan.
Hard Money Loans
Hard money loans are loans that are secured by collateral. Once you pledge an asset as collateral, you may qualify for this type of loan. However, you should remember that if you fail to pay back the loan, the asset you have put up might get repossessed.
What You Should Think About Before Applying a Loan for Your Business Needs
Below are a few factors you should look out for:
Type of Lender
There are a variety of lenders that can help you fund your business needs. You can choose from banks, credit unions, and online lenders. However, those with bad credit usually opt to get a loan through an online lender.
Online lenders gained popularity over recent years. A lot of them offer bad credit loans for almost any purpose, including for funding your business. Furthermore, it is vital to remember that interest rates and terms vary from one lender to another.
Time in Business
Lenders most likely want to know about your experience in the business arena. If you have been in the business for quite some time, perhaps five years, your loan approval chances are improved. The longer you have been in business, the more experienced and knowledgeable you are in what you are doing.
It is vital to review and evaluate the loan terms. Even if you currently have bad credit, that doesn’t mean you should end up in deeper debt. Moreover, you are borrowing the funds to improve your business or keep it running smoothly, not to put yourself in a bad financial situation.
The lender should get you the money you need and release it promptly. Moreover, the interest rates should be favorable and should fall within your budget.
If you think your business can still function smoothly even without funding for a little while, it is best to wait and work on your credit score first (business and personal). However, if you need immediate funding, then the options above can help you out. Furthermore, in deciding what type of loan to get, it is vital to consider your current financial situation.