The process of funding a business is a daunting task in itself. Getting funding with bad credit ratings is even more challenging for most business owners. This can be attributed to the current financial institutions built around credit scoring systems used to gauge borrower’s risks.
This has left poor credit borrowers in precarious situations where they are denied funding or forced to pay unaffordable rates. The good news is that not all are lost. As there are multiple alternative lenders out there willing to work with entrepreneurs possessing poor credit.
In this article, we look at those alternative lenders ready to fund small business owners with bad credit history.
5 Funding Options for Small Business Owners with Bad Credit
1) Business Grants
Qualifying for a grant is always tricky. However, after you succeed in securing one, you can rest knowing you found the best funding option out there. Grants carry little to no risks as most of them don’t have repayment terms.
The only issue is that most of them have distinctive awarding criteria where you have to belong to specific demographics or industries. Once you find one that falls in your business niche, formulate a viable business plan and make the application.
2) Nonprofit Micro Lenders
If your credit score is as low as 570, micro-lenders are always willing to listen to you. Unlike traditional banks that only work with experienced entrepreneurs with a 620 score and above, these non-profit organizations are ready to fund a unique business idea.
Financing business needs range from $5000 to $ 30,000. If your funding needs fall in that limit, then this option may be economically viable for you. Don’t forget to assess each lender repayment terms as there may be hidden extra costs. And charges that may make loan servicing expensive for your business.
If the conditions are fair, take the loan, make timely monthly payments, and use it to build your credit history.
3) Business Credit Card Loans
Business credit card loans can be a great way to fund an urgent business need. All you have to do is apply for a business credit card and apply for a business-related loan. These cards are friendly to people with poor credit scores, awarding finances to American business owners with a score of as low as 550.
All they have to do is run an inquiry on your credit history and allocate the funds according to your credit profile. These cards can also be a great way to build your personal credit rating. If you make timely payments, these cards are a great way to build your score to an exemplary level.
By now, you have probably heard about Crowdfunding platforms funding technology-related startups. The good news is these companies fund all types of businesses with unique problem-solving ideas.
They are not the factor in your credit score; all you have to do is convince funders/investors that your business idea is worth supporting. Among the most popular Crowdfunding companies include but not limited to, GoFundME, Kickstarter, Kiva, and Indiegogo.
All these platforms have common funding models. The first model is a reward oriented model, where investors invest in your business in return for a product sample or service. For instance, if you need funding for a photography business, the reward could be a free photo session for each investor.
The second model is a security/share like approach, where investors are interested in being part of the business for a financial return. In this case, they own equity shares in the business or Startup Company.
5) Invoice Financing
Small businesses faced with cash flow issues often find themselves taking business loans. That can be attributed to their little knowledge about invoice factoring opportunities. This type of financing allows small enterprises with unpaid invoices to factor them in and receive cash advances of up to 95%.
If you want to fund a business need but surrounded by a pile of unpaid inventory invoices, contact an invoice financing company and sell them the invoices. This will save you the resources that would have been used in loan applications and repayments.
However, be on the lookout for factoring companies looking to exploit upcoming startups with vague contracts and expensive factorings.
As seen above, bad credit should not stop you from starting or funding a new business. There are multiple financing options out there willing to offer you the funds you need to take your entrepreneurial project to the next level. However, it important to start your credit repair journey by maintaining healthy financial habits, such as making timely debt repayments.