Do you have bad credit? If you do, you may encounter troubles when you try to get some loan to back your new startup business. Most loan companies will pull out your credit score, if it is low, they would charge you a higher interest rate, and they may reject the business loan application you put forward, overall.
Having a good credit is something that will increase your chances and make it easier for your startup to receive funding since it opens up all traditional avenues of financing such as a lender or a local bank. However, most people worry about receiving startup business loans with bad credit. The key for any business to receive financing or funding actually lies in their value and vision preposition. The good news is that several businesses can still receive funding, even if they have bad credit.
Before you consider approaching a lender, if you have time, it will be a good choice for you to focus on repairing your bad credit, so you can increase the score and even qualify for some better terms. However, if you want to get your funding right away, even with a bad credit, you can consider several options.
The SBA was the mastermind behind the microloan program and funded by it to help startups and businesses with their expansion costs. Usually, the amount of the loan can go as high as $50,000 but the average cost is $13,000. The SBA gives the microloans to nonprofit intermediary lenders such as Aurumfi and other community-based lenders, assists them in addition to the types of loans they offer.
These funds can work for machinery, capital, inventory, furniture, fixtures, or supplies bit not existing debts or real estate. You can find different lenders in your area and apply for this loan.
Turn to Your Inner Circle
The very first places you can consider for financing is your inner circle, and this refers to your family and friends. According to the Global Entrepreneurship Monitor’s report, “most businesses get financing from a combination of personal resources, family, and friends.”
The positive thing about this is that people you know will not use any credit-based algorithm to conclude on whether they should really lend anything to you or not. Rather, they base the decision on your business plan and knowledge of you. If you have assured them that you are trustworthy and responsible, they would consider lending to you, and if they cannot, they will have a connection in their circle that would be willing to help.
While the whole thought of borrowing from a family or friend can result in a much more cost, a factor that could be at risk is your relationship with the person securing the loan. The downside is that if you do not follow the process, things could go sour and damage your relationship. You will then have to bear some of the unpleasant social repercussions that follow. Make sure that you consider all of the possible benefits and the consequences of this option.
Personal Loans for Bad Credit
Although most lenders offer business loans to businesses that have one or two years experience in the business before they even qualify, several lenders also offer personal loans you can use for your business. A few lenders also offer lenient options with minimum credit score requirements, while others would consider factors in addition to the credit score, like your online accounts, and bank account history.
In addition to the ones mentioned above, another valuable route is to get venture capital, which is when the investor gives you cash as an exchange for the equity in your startup or company. Typically, the investor will want to play a better and active role in the decisions of your company. According to the SBA, this is a different funding type, compared to traditional loans because typically, the investors do the following:
- Take higher risks to earn them higher returns potentially
- Focus on the high growth potential of young companies
- Have a longer horizon of investment
- Monitor businesses in which they invest
This application process also requires you to have a working business plan and keep all the necessary materials to allow investors to execute diligence on your startup. Know that in an investor is willing to invest in you, you can get the money you want in exchange for giving a take in your company’s debt or equity. The investor will then take an active role in your business.
You Have Options, Even With Bad Credit
If the thought of starting up a business discourages you because of finances and a bad credit, you do not need to worry! Never let your bad credit discourage you. You can turn to many avenues to get a loan, regardless of whether you have a good or bad credit. Take your time to research options and choose the one that works best for you. Once you choose the right one, you can get your startup to grow and reach its full potential.