Securing a business loan when you have bad credit can be incredibly frustrating, especially for start-ups or first-time business owners who don’t know the ropes. Traditional banks have always had stringent credit requirements for small businesses. And a low credit score almost automatically prevents you from being approved for a loan. Fortunately, business lending has evolved and small business owners with bad credit now have more options than ever for securing business loans. Here are five options for bad credit business loans that may be able to meet your funding needs:
1. Short-Term Loans
If you’re looking for bad credit business loans that come with a simple, predictable structure, short-term loans might work for you. Short-term loans are almost identical to what traditional banks offer, but there are a few key differences. Rather than being offered over a multi-year period, these loans have terms lasting anywhere from three to 18 months. Because they come with such short terms, you typically have to make loan repayments more frequently, instead of monthly. Fortunately, the application process is simple and relatively quick, getting you access to the cash you need sooner. Some banks consider applicants with credit scores under 500 for short-term loans. So, for short-term business loans bad credit may be irrelevant.
2. Small Business (SBA) Loans
With small business loans bad credit does not always bring instant disqualification. You don’t need a perfect credit score to be eligible for a small business loan, which is important because Small Business Administration (SBA) loans come with more desirable interest rates. Most successful applicants have credit scores over 650. Traditional lenders take part in the SBA loan program because the U.S. government stands behind the borrower to guarantee the small business loan with bad credit. SBA representatives want to work with small companies that have been in business for at least one or two years. Before approving bad credit small business loans, the SBA specialist will study the borrower’s financial statements to ascertain the chances that a loan will be paid off.
The downside of SBA bad credit business loans? If your credit score is lower or your business is struggling or not showing signs of growth, then you may not be eligible for small business loans for bad credit.
3. Equipment Financing
If you need to borrow money to buy necessary equipment for your company, you may qualify for bad credit equipment loans. With these types of business loans with bad credit, the value of the equipment is the collateral that guarantees the lender will own something in exchange for the loan. For instance, if you own a trucking business and wish to purchase another truck, a financial institution can loan you the money for that truck with little risk. Even with bad credit secured loans, backed by the equipment as collateral, borrowers have a chance to grow their business regardless of their financial history. The good news is that, after you pay off the installments in a collateral loan with bad credit arrangement, you own your equipment. If you’re looking for equipment-specific bad credit business loans, equipment financing could be for you.
4. Fundraising Websites & Non-Bank Websites
Personal fundraising platforms — or “crowdfunding” — represent a newer option for a business loan for bad credit. Sites like “GoFundMe” or “Kickstarter” can make fundraising both small and large amounts faster and easier. This option is not a bad credit business loan, but rather a platform that does not require payback for donations. If you have a large network of friends and family members and if your fundraising page presents a strong and compelling case, you could raise funds for your startup. If you have not had luck closing business loans for poor credit, your credit score is irrelevant to these online sources.
Also, there are several online nonbank lenders on the internet that now offer bad credit business loans. The borrowing amount is typically in the $5,000 to $25,000 range. Be sure and do your homework because these lenders have different requirements on how loans are priced. But generally, for these business loans bad credit may result in a higher interest rate.
5. Invoice Factoring
Unlike bad credit bank loans or other options that must be repaid, invoice factoring is not a loan. When you factor your invoices, you receive an advance on work that you have completed so you do not have to wait weeks and months for your customers to pay you. Many business owners prefer invoice factoring to alternative business loans. When business people with bad credit need a loan, they can qualify for invoice factoring based on their customers’ credit histories, not their own. Compared to some other bad credit options, factoring is a fast solution. Companies can turn their stack of accounts receivable into instant cash after a quick approval process, often within just one day. In addition to speeding up cash flow, as a source of business funding with bad credit, invoice factoring typically provides clients with other valuable services such as professional collections work, credit checks, and access to helpful online account management tools.
Final Thoughts on Bad Credit Business Loans
As alternative lenders, such as factoring companies, enter the market, small business owners with bad credit have more options than ever to secure financing. You want to be confident in your ultimate choice and your ability to pay back the loan — your business’ success depends on. Take the time to weigh your options, talk with lenders and think about what makes the most sense for you.
What are the best bad credit business loans for you? If you are facing funding challenges, speak with a representative at Interstate Capital, a business funding and factoring leader since 1993. Your financial future is worth a conversation with Interstate Capital’s bad credit business finance specialists.
It all starts with a no-obligation rate quote!