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Tips to Finance Your Business with Bad Credit

It is a widespread misconception among individuals and businessmen that bad credit will make you ineligible to obtain financing through any channel.

While it is true that traditional lenders like banks and financial institutions are reluctant to lend their money to people with bad credit, it is also true that there are several other options available that do not give much heed to your credit score.

This does mean, however, that you may have bad credit and still be able to secure finance for your business.

What is Bad Credit?

A credit rating involves a set of the financial information pertaining to a person or a business organization. It becomes bad when the information consists of more negative items than positive ones. Huge debts, insolvency, and late payments on your previous loans will add negative marks to your credit score.

Bad credit score varies from one lending entity to the other depending on their specific requirements but one can safely say that any score less than 620 will be considered bad by most lenders.

Tips to Finance Your Business with Bad Credit

The very first option on your list to financers despite the bad rating should be your friends, relatives, and spouse.

These are the people who know you personally. If they believe in you, they will not hesitate to finance your business with their own money.

A great advantage of working with loved ones is that you don’t need to fulfill any documentation requirements.

You go to them with a plan, and if they approve, they will lend their money to you.

You, on the other hand, need to be fair with them in all monetary transactions.

Alternative Small Business Loans

As discussed earlier, a person with bad credit still has a chance of securing finance, however, he will not be able to do it with traditional means.

The option available is an alternative loan.

The good thing about an alternative business loan is that it can be had with bad credit. The bad thing is that the lender will seek more interest from the borrower because he is taking more risk by betting on you despite your bad credit.

If you don’t want to opt for the alternative business loan, you still have a few choices available that will allow you to secure financing for your business. These are:

Invoice Financing

Invoice financing is a very popular mode of financing which is being undertaken by a lot of businesses.

Invoice financing involves selling your invoices (that haven’t been paid by your customers yet) to an invoice financing company.

The company analyzes the strength of your invoices on the basis of the customer’s payment history and several other factors and then purchases those invoices form you at a discount.

This way you can have the cash that you require.

Again, you will have to pay the financing fee to the company which is mutually agreed between you and the invoicing company.

Short-Term Microloans

These are very small sized loans that are given for a period of less than a year. The amount of these loans is very small and thus, the lender is less reluctant to disburse it despite the bad credit.

SBA will also guarantee a small business loan allowing you to obtain financing from another render

With the help of these bad credit business loans, you can fulfill your immediate cash requirements, however, for this is not suitable if you are seeking a long term loan.

Online Lending Pools

A new phenomenon is getting traction these days.

It involves a number of investors with little amounts of money. These people would band together in order to form a kind of union. This union seeks out investment opportunities on behalf of the investors.

They will be willing to lend you money even if you have bad credit. However, you need to satisfy them that your business is a viable investment opportunity, and that their money will be safe, along with accrued profit on their invested capital.

What you need to know about these lending pools is that most of the time they would insist on having a part in the equity of your company. This means that they will become part-owners of the company besides yourself. If you are okay with this kind of arrangement, you should opt for this business loan.

The Final Word

The last, but not the least, an important tip for financing your business with bad credit is that regardless of a thick type of financing you are opting for, you must always keep your documents in order.

Whether you are working with a bank, a financial institution or a private lender, if your documents are not in order, you may find it difficult to push your case through.

Having bad credit does not mean the end of the world or your business. Simply seek out an available financing option, and beat it.


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