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6 Loan Options for a Business With Bad Credit

When obtaining a bank loan is concerned, bad credit is no longer just a barbed issue. It has become a constant obstacle.

For reasons that have much to do with generating profit and little to do with minimizing risk, banks severely constricted up their business lending requirements over the last decade.

6 Loan Options for a Business With Bad Credit: eAskme
6 Loan Options for a Business With Bad Credit: eAskme

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Fortunately for entrepreneurs and business owners, banks and credit unions are no longer the only available options for that matter.

There are several affordable, strategic, and practical funding solutions right now that don't entail good credit score.

Even an open tax lien or a discharged bankruptcy aren't deal-breakers.

That being said, below are the six types of loan options for businesses with bad credit scores.

Personal Loan

Personal loan lenders like Credit Ninja play by rules that slightly differ from business requirements and rely on your credit as an individual.

Hence, a bad business credit wouldn't be a burden to you.

The lenders will check on your creditworthiness and ability to repay the loan along with other eligibility requirements to grant you a personal loan. The state of your business isn't their concern.

The amount you can get is $1,000 up to $50,000 depending on your credit score.

A personal loan can be used for any legitimate reason in general, including funding a business.

However, you need to consider the conditions that come with it.

The most significant one is that it's not your business name, but it's your name that gets attached to the loan.

Any business missteps will automatically hold you liable.

Microloan

A microloan is a short-term, small loan for businesses with low capital.

This type of loan provides a high approval rate because the amounts are usually less than $50,000.

For instance, the U.S. Small Business Administration provides microloans that can be used for inventory purchase or working capital.

The only snag with SBA's microloans is that you can't use them to refinance existing debt or purchase real estate.

Many non-profit organizations and credit unions also offer microloans along with varying restrictions on how the loans can be used.

If you qualify, these loans are one of the least expensive options.

Peer-to-Peer Lending

Peer-to-peer lending is a platform where different investors use an online marketplace to fund a single loan.

These investors will review the borrower's application and profile and decides whether or not to contribute funds for a loan.

The loan may be funded by various investors, but you'll only get a single loan with a single monthly payment.

This type of loan also has a quicker process and gives you access to capital way faster than if you undergo the lending process for traditional loans.

The only catch is you might need to guarantee the loan personally, which could put your personal finances at risk in case the business fails to repay the loan.

Further, expect higher interest rates on loan too.

Although, it is expected from lenders who offer loans for businesses with bad credit.

Merchant Cash Advance

A merchant cash advance could be the financing option if you need access to cash in a short amount of time.

Through it, the lender will grant you a loan amount according to your business's anticipated sales.

This loan has two repayment options.

You can repay the loan through allowing periodic transfers from your bank account.

Or, you can use your debit card sales and future credit to repay it.

It's important to pay close attention to the merchant cash advance's interest rates and steer clear of those with higher interest rates, particularly those advances whose APR (Annual Percentage Rate) reach triple digits.

Besides enhancing your cash flow, there's no definite advantage to paying your cash advance early on.

If you think this option will work best for you, inquire to your merchant services provider and see if merchant cash advances are available.

Invoice Financing

Another good lending platform for business with bad credit is invoice financing which allows you to acquire money from unpaid invoices.

The lender will buy your unpaid invoices, gives you the percentage of the amount owed, and holds to a chunk of the total amount until the invoice gets paid.

The lender will then check your customer payment history to ascertain their probability of paying on time to set the rates and approve financing.

The interest rates for invoice financing can be high depending on the customer payment timing and your personal credit.

There's also a weekly accrual on the loan until it's repaid.

Thus, you have to thoroughly consider the fees and interest rates to decide whether it's a feasible option to fund your business.

Business Line of Credit

Technically, a line of credit is not a loan, but many business owners resort to this option to cover temporary shortfalls and unexpected costs.

If you always find yourself needing fast access to cash-on-hand or need immediate funding, then a business line of credit is the loan for you.

It's also for those business owners who need capital to stay afloat and cover unexpected expenses in the future.

In case you'll need to hire an additional workforce to take on an unprecedented amount of customers, or need extra materials to take advantage of growth opportunity, credit of line got you covered.

Line of credit's other key advantages include:

  • Instant access to funding.
  • You only pay for the interest of the money you borrowed.
  • Repaid amounts will be available right away for future borrowing if the line is revolving.
With incredibly flexible repayment terms and lightning-fast access to funds, a business line of credit may be the funding your business needs.

Takeaway

It's still generally possible to find business loans even if you have bad credit.

In most cases, you'll be offered loan options with higher rates and fees than what someone with a good credit score might get.

You can use a free credit score service to check your credit score before you start applying for loans.

Nevertheless, if you don't have the ability or time to improve your credit prior to loan application, the following lenders above will offer you an excellent place to start.

If you still have any question, do share via comments.

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