Alternative funding options if you have bad credit score.

Your credit score is one of the first things taken into account when applying for business finance, but what if you have a poor credit history? The main thing to know is that while it may be more difficult to get business funding with a less-than-stellar credit rating, it is still possible. There are several alternative options to a traditional business loan that may be available to you, depending on your circumstances.

Business Bank Loans:

The good news is that for those with poor credit histories, the door to getting business funding isn’t completely closed. However, it’s worth bearing in mind that the choices can be less than ideal. Banks tend to base their decision to lend on your business’ credit rating, and if you’re setting up a new business, your personal score is likely to be the main factor.

The worse your credit, the higher they will perceive the risk – and the higher you can expect your interest rates to be. For this reason, a traditional business bank loan is the option that is less likely to work out for those with a poor business or personal credit score. Traditional lenders have limits on who they will finance, but that being said it may not be impossible to gain a bank loan if you are willing to pay higher interest rates.

Microloans:

A microloan is a similar product to a traditional bank loan, however, these tend to come from alternative lenders, many of whom are more likely to lend to those with poor business or personal credit. If you are willing to take out a personal loan in order to get the required funding for starting your new business, then this could be an ideal option for you if you have a poor credit history.

In addition, these loans tend to be for smaller amounts than traditional loans, making them easier to get right away. They are an ideal option for those looking for a small injection of cash into a new business and many alternative lenders offer ‘bad credit’ loan options with funding guaranteed.

Cash Advances:

If you have an established business, a merchant or business cash advance may be an option worth considering. Generally speaking, this option tends to only be available to those who are experiencing cash flow problems and need around ten thousand dollars or less.

Bear in mind, however, that these types of cash advances tend to have very high interest rates, meaning that you can be certain to pay more in the long run than the initial loan – with particularly high fees if you miss a payment.

Business Credit Cards:

Whilst they may not be the easiest option to get hold of with a poor credit rating, it’s worth trying to see if you can secure a business credit card. Once you can begin making purchases and on-time repayments in your company’s name, you will be able to access funding and begin building good business credit at the same time.

You can get a business credit card from a bank or credit union, and each will have its own set of requirements for eligibility, interest rates, credit limits, and repayment terms.

Friends and Family:

For those just starting out in business, borrowing money from friends and family can be a viable option, particularly if they are given the option to not only lend you the funds but invest in your company at the same time. If you have people in your life who are willing and able to invest in your business, then getting a loan from them is an option sometimes worth considering.

Of course, for many entrepreneurs who are just starting out and in need of cash this may not be an option – family and friends simply may not have the funds, or their social circle may not be large enough to raise the amount that they need. One option would be to borrow a small amount from friends and family and make up the rest with a bad credit loan or credit card.

Investments:

Last but not least, for many entrepreneurs who’re starting out with a new business and a poor personal credit history, getting an investment of cash into the business can be a more doable approach to gaining the necessary funding.

Pitching your idea to a panel of angel investors can be daunting, but it’s also worth a try – all it takes is for somebody to see the promise in your business and provide you with the funding that you need in return for a share.

If you’re trying to start a business with poor credit, don’t worry – there are several alternative options worth considering.