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Are You A Business Owner With Bad Credit?

business owner grabbing his head in despair at the desk near the laptop

Financing Alternatives for Entrepreneurs with Bad Credit

One of the biggest hurdles to small business growth is access to the amount of capital needed for the business to grow. Without this capital, small businesses cannot hire new employees, upgrade their inventory or market effectively. Business loans can give your business the capital it needs to expand. It can be quite difficult for small business owners to obtain a business loan from banks and other financial institutions. Lenders prefer to grant business loans to large companies and corporations due to their larger annual revenues. However, it is becoming apparent that small businesses with good credit are having an easier time receiving funding.

According to recent studies, only 27% of businesses that tried to obtain a business loan were approved for funding. Some of this is due to the tightening of industry regulations after the financial crisis of 2007-2008. This increase in regulations has made it difficult for small businesses with great business credit ratings to obtain loans, let alone businesses with poor credit. Many small business owners were faced with bankruptcy and foreclosure during the financial crisis and have found that this negative financial history makes it even more difficult for them to be approved for traditional business loans.

While it may seem like a daunting task for a small business owner to pursue loans or other forms of financing, it is essential for any business that is serious about its growth. Expanding your business can increase profits and future opportunities. Successfully expanding your business can help to improve your company’s credit, offering even more opportunities for growth in the future.

So what can you do when you have bad credit and need access to capital in order to expand your business? There are a few things you can do to improve your chances of receiving a small business loan, even if your credit is less than stellar.

Revenue Based Financing

If your small business has regular cash flow coming in, you can use this to your advantage and obtain a revenue-based loan. This kind of financing can be obtained relatively quickly, so it is a good solution when you need capital within seven to ten days but don’t have the credit to obtain a traditional small business loan. This type of financing requires a credit score of at least 550, gross sales of $100,000 per year and at least five bank deposits a month. This short term financing must be paid off in 4-18 months and usually feature a higher APR than a traditional loan. Revenue based financing doesn’t require you to put up any collateral. Your payments are taken daily from your company’s bank account until the loan is paid in full.

Merchant Cash Advance

If you have bad credit but your business has monthly credit card sales on a regular basis, you may opt for funding your business through a business cash advance. This will give your small business the cash it needs upfront, while taking a portion of those credit card sales until the advance is taken out. This can be a cost effective and fast way to obtain financing. You don’t have to worry about credit checks, collateral, closing costs or late fees. Since payments are made automatically, you won’t have to worry about payment schedules either. You should shop around for the best merchant cash advance provider, as rates can vary significantly.

Credit Partner

Another alternative is to use a business partner to serve as a credit partner when applying for business credit cards. This person should have a high personal credit score and be willing to cosign for business credit cards. The person can already be a business partner, or they could be someone interested in becoming a partner in your business. A business credit card will not appear on the cosigner’s personal credit report unless the card goes into default. If you decide to pursue business credit cards, keep in mind the credit limit, costs, fees and annual percentage rate. Some cards offer perks and rewards that can help you save money in other areas.

Other Options

There are other funding alternatives for small business owners with bad credit. You may choose to pursue small business loans specifically for people with low credit scores. The Small Business Administration (SBA) is another option for entrepreneurs seeking financing. Some banks and organizations offer grant money to certain types of business owners and businesses.

Many of these options are great alternatives for entrepreneurs with poor credit. They can provide the capital you need in a timely manner, without loads of paperwork and complicated timelines. After all, time is of the essence when it comes to growing your business. It’s important that you research all of these alternatives to determine which financing alternative works the best for you and your business.