Starting and maintaining a business doesn’t come free and would cost you a lot. So if you’re an entrepreneur looking to begin or upgrade a business, you might be looking for ways to fund it. One go-to resource of many business owners is business loans, which are usually easy to avail. However, there are also restrictions for some before you can apply, especially when it comes to credit scores. Read on to know the answer and details regarding a bad credit score relating to business loans.
How important are credit scores in applying for a loan?
Many lenders use credit scores as a basis for measuring risk. Therefore, the riskier you and your business will look to your lender if you have low or bad credit scores. Although you have a separate personal credit score and a business credit score, both of these will be considered when you apply for a business loan. This means that you need to take good care of these two to get a hassle-free business loan in the future.
How to get a business loan if you have bad credit
There are few steps you can take to help you get a business loan despite your bad credit. Take a look at the following steps:
- Be aware of your credit score. Request for annual report.
- Offer collateral like equipment, personal assets, cash or savings accounts, or investment accounts.
- Provide a co-signer.
- Check the eligibility requirements.
- Apply or target lower funding.
By exploring and trying at least one of these, you can still get the business loan you ever dreamed of without worrying about your bad credit.
Types of business loans with bad credit
If you’ve come this far, you surely are eager to get that business loan of yours. Here are some ways to get funding for people like you who need unsecured business loans with bad credit.
- Short-term loans
Some lenders offer short-term loans, which will require you with little to no collateral. Short-term loans are typically paid in weeks, months, a year, or less. It only requires your proof of employment, particular monthly salary, an identification card, and a bank account.
- Equipment financing
Equipment financing is ideal for you if you plan to purchase business-related equipment but don’t have enough funding. Equipment like copy machines, vehicles, or even a restaurant oven is qualified for this financing. Note that you need to swear periodic payments that have interest and principal with this one.
- Invoice financing
Borrowing money while waiting for your customers’ payments is possible through invoice financing. This is effective if your customers are taking too long to pay. You can use this funding to pay for your employees, rent, purchase supplies, and reinvest as well.
- Merchant Cash Advance (MCA)
MCA is not technically considered a business loan, instead a cash advance based on your credit card receipts. The lender will take a portion of your upcoming credit card sales every day as the payment. It also provides fast access to cash and has flexible repayment terms.
- Business Line of Credit
A business line of credit or also known as LOC, is considered a revolving loan. It will introduce you to a fixed amount of capital, which can help meet short-term business necessities like purchasing inventory, repairing business-related equipment, and funding a marketing campaign.
Now that you know that you can still get a business loan despite your bad credit, you can start deciding what loan is ideal for you. There are different types of financing made available for business owners like you and make sure to prepare yourself for this uphill battle. Thanks to these alternative lending options that are ready to save entrepreneurs in such situations.