Most people wouldn’t think about going to the bank for a business loan with bad credit, assuming it would be impossible. The good news is that there are plenty of other options out there. For anyone looking to start their own business or expand upon an existing one, getting that first loan can be crucial to success and it doesn’t have to be the end of the world if you don’t have stellar credit. Here are seven ways you can get a business loan with bad credit.
How to Get a Business Loan with Bad Credit
1) Look for Other Options
When we are talking about loans, you need to understand that your credit history affects how easy it is for you to get approved. Bankers want loan recipients who they feel will be responsible. If your credit score is below 600 and has some serious negative marks like bankruptcy or charge-offs, then your ability to find financing can be very limited. Here are some possible options
1) Leverage what you have. It’s not too difficult for entrepreneurs of startups that have significant equity in the company to get financing from angel investors or venture capitalists
2) Use someone else’s resources.
3) Think outside of the box. You may have options that you haven’t considered. If you have friends or family who could give you a personal loan, perhaps through a line of credit on their home, think about whether that would help your situation. Look into options such as peer-to-peer lending and borrowing from your 401k plan. Look for any creative solutions that will meet your goals while at least being somewhat traditional and within legal bounds
2) Start SAVING MONEY TODAY
It is crucial that you start saving money. If you have money in the bank, this will show lenders that you are a responsible borrower. You can set up automatic transfers from your checking account so that every month when your paycheck comes in, 10% goes into your savings account and 90% goes into your checking account for living expenses.
Your goal should be to save one year’s worth of living expenses as quickly as possible (or more if possible). That way, if something happens and you lose your job or face an emergency expense like buying a car, you’ll be able to weather the storm. The most important thing to remember is not to touch any of the money you’re saving – it should stay in the bank until you need it.
3) Review your cash flow
Every business needs money, but not every business has the financial stability that’s required for borrowing from a bank. If you have poor credit or you’re starting out and don’t have a good credit history, it can be hard to get funding for your small business idea. No worries! Here are some strategies for how to finance your new business without getting a loan
Bootstrapping – Bootstrapping is when an entrepreneur funds his or her startup using their own savings (or those of family and friends). If you’re just starting out, save up as much money as possible before opening your doors. This will show lenders that your commitment is there even if your cash flow isn’t perfect yet.
Partnering – If you’re looking for outside funding, consider getting in touch with business partners who may be able to provide support or expertise. You can go solo on your own, but partnering up can help get your idea off of the ground. Remember that business partnerships come with their own share of complications, so make sure you go into it carefully. Make sure there’s an exit strategy and clarify how much equity everyone will have when it comes time for an exit.
4) Think Long Term
Every person has their own strengths and weaknesses, and having bad credit is only one of those many things. Even if you are in the minority of people who have terrible credit, don’t lose hope. They say that having poor credit is not just about what your creditors think but also about how responsible you are as an individual. After all, it’s in everyone’s best interest for people to be able to recover from past mistakes and improve their present and future selves.
5) Learn From Others
Since starting your own business is such an important and exciting milestone, it’s worth the time and effort to take a look at some of the ways you can get your hands on funding for your startup. Below are 5 ways to get a business loan with bad credit.
1) Consider online peer-to-peer lending options. Peer-to-peer lenders are interested in funding entrepreneurial ventures and will help you secure loans from individual lenders online by either giving out loans themselves or making introductions to others who do so.
2) Apply for financing from an angel investor or venture capitalist. Entrepreneurs might want to seek out investment opportunities through forums that provide introductions between angel investors, venture capitalists, and other capital sources.
3) Consider borrowing from friends and family. Borrowing money from loved ones is always tricky, but it can be easier than securing financing through other channels if you have great personal relationships with your family members or friends. Just make sure that you clearly outline the terms and conditions of loans from friends and family in written documents, such as promissory notes. It’s not uncommon for these debts to come back into play when divorce proceedings occur, for example. Regardless of the circumstance, having this type of debt could impede your ability to acquire new lines of credit later on down the line.
4) Look into applying for a bank loan. A bank loan may be difficult to obtain because they typically require collateral, which most people don’t have when they’re just starting their businesses. But banks may consider granting someone a small business loan with no collateral in exchange for pledges against future earnings once profits start rolling in, which could happen after several years.
5) Seek out alternative lending sources like commercial banks or Small Business Administration (SBA). Commercial banks offer competitive rates and access to loans up to $2 million; unfortunately, they also tend to require collateral and past success stories before approving any kind of small business loan request.
6) Know Your Finances
A personal financial assessment is your first order of business. Without an understanding of your current situation, you won’t be able to present the credit company with the best possible case for the loan.
So start by getting your personal finances in order and do whatever it takes to get a grip on any outstanding debts that might derail your application for a loan.
7) Don’t Give Up
Being denied a business loan doesn’t have to mean a game over. Here are 4 ways you can go about applying and getting approved for loans that might suit your needs
– Apply for an Invoice Factoring loan, which can be as high as 50% of the invoice amount and is paid upfront.
– Apply for an Accounts Receivable Loans loan which can be up to 80% of the total invoice due date balance.
– Look into alternative lenders like Quidloans, Eloan, Square Capital, or Biz2Credit. They offer many services from accounts receivable loans or small business loans.
– Consider applying for an invoice financing loan, which is when you finance invoices through a bank. You only get paid after paying off your loan.