post by:
Michael Goldstein
Obtaining funding for your business can be difficult when you have bad credit. Nonetheless, there are opportunities out there. You just have to know where to look. We’ll list the best financing options available to you, so you can grow your business without worry.
Nobody is perfect, especially those who own businesses or who are starting one. You are the risk-takers. You see opportunities and go after them. And sometimes…this can lead to bad credit. While you’re working to rebuild it, you shouldn’t let opportunities pass you by. It can be a slow process, so it’s important to find solutions for your present situation. Don’t think you have any? There are several people in the same situation that have successfully secured funding for their business, despite the setbacks. We’re here to share those solutions and get you on the path to your own success.
Personal Loan
A personal loan is a simple way to get funding for your business. It requires set monthly payments, so you can plan your budget. It is much easier to obtain than a business loan. Though the interest may be high, considering your credit history. But, you can always refinance later when you have better credit.
You can apply for a personal loan at a traditional bank, however that may be more difficult than reaching out to a lender. Lenders are more flexible with credit history and have more financing options than banks. Be aware of your credit score going into an application, so you know what to expect.
Merchant Cash Advance
A merchant cash advance is something to consider if you want flexibility in your loan. They don’t need to dictate how you’re spending the money on your business. It’s completely up to you. They take a percentage of each credit and debit card sale and put it toward the lump sum you owe.
There are several merchant cash advance companies out there. You don’t have to wait long to apply. Your business only needs to be up and running for three months before they’ll consider you. Your credit score is not always a factor in their application. It’s all about finding the right company.
Inventory Financing
Inventory financing is great for those who strictly need help stocking their inventory. They will offer a loan amount that depends on your business’s worth, inventory value, and credit history. Just because you have bad credit doesn’t mean you won’t be approved. It just means you won’t get as good of a deal if you did.
You can apply for inventory financing at traditional banks and lenders. Often, they will only give you only 50%-80% of your inventory’s value, but money is money, right? You can pay the loan back with the profits from your renewed inventory and voila. Stay up to date on payments and your credit score will climb.
Accounts Receivable Financing
If you need cash fast then accounts receivable financing might be the way to go. You present your “accounts receivable” to a factoring institute, they evaluate your assets, and the institute makes an offer. If you find that the discount they want is worth the fast cash then they will give you a lump sum and pay you the rest over time, depending on how well your accounts do.
You can apply for this type of financing at factoring institutes, which are subsidiaries of banks or lenders. The process is usually quick, but they will do a thorough appraisal of your accounts to determine their value and the discount they require from you. Bad credit may hurt your contract, but you can’t be too picky when someone’s offering the cash you need.
Secured Loans
Personal or business, if you’re having a hard time getting approved for an unsecured loan then a secured one is your best bet. They often need collateral such as a mortgage or car loan. The great part is that you will get lower interest rates with a secured vs unsecured loan.
You can apply for secured personal and business loans at traditional banks. They may be harder to convince, as they are picky about credit history. Lenders are more flexible, and will offer you more choices in your financing. Remember, you can always refinance later.
Credit Card Cash Advance
If you can’t get approved for loans then you can always turn to credit card cash advances. If you’re building your credit score, it can be hard to put the debt back onto the card. You’ve worked hard to pay off. But it’s easy and, as long as you make the payments on time, you will survive.
The downside of credit card cash advances? The interest is high. They will often charge you when you pull out the cash and then, depending on the credit card, they will charge you high rates. It doesn’t require a credit check, though, so you’re in the clear if you need to take advantage of the opportunity.
401K Loan Options
Some 401K plans allow you to borrow the money for a certain amount of time. They will charge you interest, of course, but it doesn’t require a credit check. It may take a few weeks to arrange the loan, so plan your finance needs accordingly. The money you take also misses out on interest-free growth while it’s gone. Keep that in mind when you’re planning the repayment date.
If you don’t have a 401K but you have an IRA account, you can always borrow from it. You will have to pay a penalty fee, but it’s something worth considering if you’ve exhausted all other options. So, if you can wait for your credit score to increase, then wait. It’s not worth putting yourself in more debt or paying extra fees just because you’re impatient.
Bad Credit Loan
Bad credit loans are similar to traditional loans with one key difference. The interest is high. It’s to be expected when these companies are giving their money to high-risk clients. They need to make money somehow, and you need the money now.
Bad credit loans often come from small lenders. Traditional banks won’t often risk their money on those with bad credit. The contracts vary. They can be payday loans, revolving cash advances, or installment loans. It all depends on the company and your unique situation.
How Can I Increase My Chances Of Approval?
The simplest solution, of course, would be to increase your credit score. You can pay off debts, so your debt-to-income ratio is lowered. Make payments on time—this is key if you want to rebuild your credit. Check your credit report for mistakes. A credit card may not be updating with your progress or someone else’s debt may be listed on your account simply because they have the same name.
If you have a trusted friend or family member with good credit, ask to be an authorized user on their credit card. This basically means you have a “good reference.” If you’re applying for a loan, ask that friend with good credit to cosign. This will increase your chances significantly. But be sure to keep up your end of the deal or else you might lose that friend.