Strengthening the liquidity of your business through a loan that allows you to expand or improve your facilities and/or equipment, to mention a few possibilities, is an excellent justification of a loan. However, conventional lenders close their accounts when your credit rating is between 300 and 629.
There are alternatives to conventional methods to obtain a loan for small businesses with bad credit. We will review what are the alternatives available so that you can evaluate which one best suits your condition.
You still hope, because in these cases the “unconventional” lenders focus more on the strength of your small business instead of just looking at the credit score.
After turning to traditional banks and agencies, lenders are the next option that you have. This means that you will get unsecured loans for amounts that will vary according to the lender you go to.
For these cases you have at your disposal different websites in which you must register a user, entering your personal data, your business and, in some cases, your partners’ (some lenders ask the companies that at least 70% of the property of the company is represented in the application).
Generally, you must meet the same minimum requirements:
- Business documents
- Have between 3 months and 12 months in operation.
- Own an accounting software.
- Maintain certain cash flow.
We have the duty to tell you that you can consider this method only when you do not have many alternatives, the reason is that the interest is quite high compared to the regular loan methods, that being said, you can use personal or commercial cards to obtain inputs or whatever you need.
Observing the positive point of this method, you must only comply with the payment dates, as well as resort to the minimum payment when your business needs it or pay higher fees if the flow gives you the opportunity. Of course, keep in mind that as you lengthen payments, interest will accrue. It is a double-edged sword.
Generally, the amounts that you can get through microcredits range between $ 5,000 and $ 25,000, which is not much for a business, although if you start doing nothing wrong with your venture. This type of lender has no problems with borrowers with bad credit, but APR rates are usually very high, so before closing a contract make sure it is the best for your small business.
In addition, using this method can help you improve your credit score if you faithfully comply with the payments, allowing you to eventually qualify for loans through traditional means. However, this resource also usually implies a significant volume of interest, so you should ensure that it does not affect your capital flow too much.
Put simply, you sell the future income of your business. The advantage of this type of loan is that you can run your business as you see fit as long as you are able to meet the fees.
The other side of the coin brings with it exaggeratedly high interests, especially if you have a really bad credit rating. On average, cash advances represent a refund of 150% of the amount requested.
Also, you cannot ignore that the reimbursement fees are daily, meaning that you need a good daily cash flow if your business receives many delayed payments or eventual payments this option is not for you.
Crowdfunding Family and Friends
It consists of a little-used resource but that can be the only exit in an emergency. Go to your circle of friends and family in search of funds for your business, making clear from the beginning what will be the conditions that apply to the repayment installments. Not because people are close you should leave the matter in words, even if they consider it unnecessary to write a contract, or at least a letter.
Money is always a delicate issue, it is convenient that you faithfully comply with the payments to avoid deteriorating relationships and, if possible, even if your project goes well, do not give yourself any luxury – like family vacations or change the car – until you’ve paid each one.
In case it is an important amount of money and the capital flow does not allow you to reimburse it in a short time, consider establishing the participation of your lenders until you have paid.
Establish a Society
Possibly your small business has real growth potential, but the capital you have is not enough, in that case a viable option would be to establish a partnership with someone making clear from the beginning that he will be responsible in view of the bank, of course, That means that your potential partner must have a credit score of 630 points or higher.
They should make clear in the contract who is responsible for the business, as well as make the payments. But do not forget, to be honest, it is the business, and in essence you, who will be the real responsible for reimbursing the money obtained.
But there are other risks to bear in mind, such as the fact that you will give up a part of your business, or the possibility of not getting along with your partner, you must think very carefully before introducing a partner in your business.
Depending on your credit rating and the amount of money you intend to obtain, there are several good options that you can turn to for funds for your small business. Consider the following factors before choosing a financing option:
The lowest credit scores imply higher annual percentage rates, which includes the interest rate and all the fees of your loan.
In case you have invoices from unpaid customers, you could get cash quickly through factoring or invoice financing, mostly the approval is based on the value of your bills, although the companies that provide this service do not ignore your credit score.
If it is possible that within a reasonable period of time you can improve your credit score and have the possibility to wait, then wait, so you will get loans with reasonable interest and reimbursement periods.
When your credit score is between 500 and 599
- In case you need a maximum of $ 10,000, FundBox is the right choice for your business. To qualify you to need a minimum annual income of 50000 $ and have at least three months active in the business, do not request a minimum score on the personal credit score.BB
- Kabbage can provide you up to $ 250,000. You must have a minimum credit score of 560 to opt for their services, as well as a minimum of $ 50,000 in annual income and an active year in the business, you must also use an online payment platform or have a checking account in exercise commercial.
- Quarters pot also offers to finance of up to $ 250,000. They require a minimum credit score of 550 and execute a soft credit query, so the application will not affect your credit score. Another requirement that you will need is at least one active year in the business and $ 200,000 of annual income to qualify.
When your credit score is 600 or higher
- BlueVine has a 6-month credit line for businesses with only six months of business history and $ 120000 in annual income, there is also a 12-month credit line for businesses with 2 or more years of activity and an annual income of $ 450000. Another option available with this lender is invoice factoring.
- StreetShares offers term loans and a line of credit with APR rates lower than those offered by BlueVine. You can also enjoy a longer repayment term, reaching three years, while BlueVine offers six or twelve months.
In the case of unpaid bills
- If you need less than $ 100,000 in the financing, you can use FundBox. Borrowers generally pay a rate that averages 7% on each bill advance with a 12-week repayment option, but the average can be 15.7% with the 24-week option.
- BlueVine is the right choice for companies whose invoices reach 5 million dollars. They charge a weekly rate of 0.5% to 1% of the amount of the invoice and can be reduced by 0.1 to 0.2 percentage points when the borrowers have customers who pay their bills on time.
After reading these suggestions, you will surely agree with us that it is possible to obtain a loan for small businesses with bad credit. In some cases, you can take the financing measures yourself, while in others you must go to a lender.
When you have to choose lenders, make sure you meet the basic requirements to qualify, such as the time you exercise your business or annual capital flow and do not let an adverse circumstance stop the progress of your business, use all the resources at your disposal.