Running a business is hard work. It takes consistency, and you must have some capital on hand to grow your company. And this is where business loans come in.
These financing solutions can help entrepreneurs infuse their businesses with cash when they need it most, which allows them to expand their operations, innovate new products, take on more employees, and ultimately succeed. But what if you have bad credit?
Low credit scores can make it challenging to secure the best interest rates and terms from lenders, but plenty of options may better suit your needs. Here are five of the best loan options for those with bad credit.
Term Loans from Alternative Lenders
Term loans are one of the best loan options for entrepreneurs with bad credit. It offers a loan in a lump sum and can be used to finance business expenses like start-up costs, equipment purchases, or inventory.
The term usually ranges from three months to five years, but it can go up to ten years if you want to give yourself more time. Unfortunately, however, banks aren’t that welcoming for those credit-challenged entrepreneurs.
Why? Well, it’s because of your less than perfect credit history which makes banks wary about lending money to you. Thankfully, alternative lenders online usually don’t require good credit to qualify for their loans.
For example, creditninja.com offers quick personal loans with bad credit for a short duration of 6 months at a low interest. And it’s a good thing considering that most small businesses need funds right away to cover their initial needs, which means they may not have enough time to improve their credit score before running out of cash.
Lines of Credit
When you’re in a cash flow crunch, business lines of credit can help. They’re similar to business credit cards and are very flexible. For example, entrepreneurs withdraw funds from their credit lines as needed, only repaying interest on the portion of borrowed money.
And as they pay off the amount borrowed, they top up or reload the funds available. This money can be easily accessed using a mobile app, credit card, or business checking account. The credit score requirements for this financing option vary based on your lender.
Credit unions and banks generally have strict standards. Fortunately, online lenders make it easy to apply with few questions and approvals in minutes, provided the company meets other qualifying criteria such as a minimum of six months of business operation and annual revenue of at least $25,000.
Merchant Cash Advances
This financing product is an advance of capital repaid using future sales. It gives a business an upfront sum of money you pay for using a percentage of the credit card receipts from your customers instead of waiting 30-60 days to get paid.
Since a business cash advance is taken out of future sales, credit scores aren’t generally a vital approval factor. Personal credit might be reviewed; however, minimum credit score requirements are typically lenient and still not as stringent as other types of loans. If it’s determined that your company will do well enough to eventually repay the loan, then having bad credit won’t matter at all.
A microloan is another option for entrepreneurs with bad credit. It’s an alternative to a traditional business loan and can help you get started with whatever business project you have in mind. Most of these loans are provided by nonprofit lenders and are accessible to entrepreneurs and business owners with poor credit.
According to the Small Business Administration, the average microloan is $13,000 and can go up to $50,000 or more. Additionally, note that microloans are secured loans. That means the microloan lender requires collateral. For example, it could be an equipment lease, inventory, stocks, bonds, machinery lease, accounts receivable, or other assets.
Good credit isn’t typically required to start a crowdfunding campaign. Instead, crowdfunding platforms allow companies to bypass banks and other traditional lending sources by taking small contributions from investors online.
It’s often easier to qualify for a loan on these sites than with traditional lenders since there are fewer requirements. For example, investors can contribute as little as $1 to the company through equity-based campaigns or receive products in exchange for their cash in reward-based campaigns.
Credit is one of the primary factors lenders look at when determining if they want to give you a loan. But it’s not the only one. So, if you have poor credit, ensure that the other factors are strong. The five loan options mentioned above are great for entrepreneurs with bad credit who need capital. Each has benefits and disadvantages, so choose what will work best for your needs.