If you have a low credit score, major banks and other big traditional lenders are not open to extending you a business loan. However, that does not mean that you have no other options to get funding for your company. Nowadays, many alternative lenders consider other factors, such as collateral and revenue, when deciding whether or not to approve loan applications. In this article, we discuss where you can find business financing when you have bad credit.
First of all, not all conventional lenders are the same. While the big ones typically only work with established businesses whose owners have impressive credit histories, smaller ones are more willing to be flexible when it comes to some of their requirements. Traditional lenders generally offer the friendliest interest rates and repayment terms, so consider giving your local bank or credit union a try before dismissing conventional lenders entirely.
To improve your odds of qualifying, you can go for a guaranteed loan by backing the loan with a collateral, such as a real estate property or vehicle. Another option is to go for a Small Business Administration (SBA) loan, where the said government agency partially guarantees the loan, lessening the risk for the lender.
One more action you can take — albeit a more complicated one — if you want a bank loan is to get a business partner who has a good credit history, then have that person apply for the loan.
If you’re open to securing small business loans from alternative lenders, then getting your financing is going to be easier, faster, and more convenient, as these lenders have simpler requirements compared to traditional ones. Most of them approve loans even if the business owner has bad credit. Some outright have no required minimum credit score. Some also consider businesses that are fairly new, as long as the company is making strong sales consistently.
However, keep in mind that you’ll be paying for this ease and speed with higher interest rates and possibly shorter repayment periods.
With alternative online lenders, you can get several forms of business financing. You can get term loans similar to the small business loans you can get from banks. In addition, you can also choose invoice factoring, merchant cash advance or business line of credit (BLOC).
With a business line of credit, you get access to a revolving credit and pay interest only on the cash you use, just like with a credit card. With invoice factoring, on the other hand, you sell your unpaid invoices to a factoring company to receive a cash advance. Once your customer has paid the invoice, you get the remainder of the invoice amount minus the fees. Lastly, with a merchant cash advance, you get an advance which you then pay off through automatic daily deductions from your credit card sales.
Fundbox offers a revolving line of credit without a minimum credit score requirement. Your business must be based in the United States or U.S. territories and earning at least $50,000 per year.
BlueVine, meanwhile, offers invoice factoring and BLOC. Your business needs to be earning at least $100,000 in revenue and you need to provide bank connection or bank statements for the last 3 months. Credit score requirement is only 530 for invoice factoring and 600 for BLOC.
OnDeck has both small business term loans and commercial lines of credit. Your company has to be at least a year old and earning at least $100,000 annually. The minimum credit score requirement is 600.
Final thoughts
Do not let bad credit stop you from seeking funding for your business. While you work to improve your credit, know that many lenders nowadays look at other factors to evaluate how creditworthy your company is and you can still get that much-needed financing without being stuck with unreasonable terms.