As a business owner, your chances of getting business loans to finance your business hinge largely on your credit score.
If you have a high credit score, you will easily get credit offers from a wide variety of sources. But if your credit score is low, you will miss out on most of these offers. For example, many banks are not willing to provide startup loans to small business owners with credit scores that fall below average.
A low credit score is like a quicksand; the more you try to run away from it, the more it sucks your feet down. So, the only way out of the situation is to fund your business in ways that will improve your credit score. This way, your score will get better and you will have more doors of opportunities opening for your business, rather than being slammed in your face.
Fortunately, there are a good number of alternative financing options for those who are unable to start their new businesses or get their existing businesses going due to bad credit scores. Here are some of the options.
3 Guaranteed Ways to Finance a Business with Bad Credit
Approaching your friends and relatives is a smart way to get the funding you need to get your business going. Chances are that your relatives and friends are really in support of your business. They want you to succeed, so they are ready to assist you in any way possible.
Though they may not be able to give you the money (as a gift), you are more than likely to escape the interest trap, which you can never escape from when it comes to bank loans. And even if you are required to pay interest on the loan, the rates won’t be as crippling as those imposed by banks.
And because they have known you over the years and have come to trust you, your family and friends won’t dwell on your poor credit score, especially when they believe your business concept is sound. So, you can start by approaching that rich uncle or friend and talking to them about the funds that you need. You will most likely leave that meeting with a check in hand.
A good way to avoid making debt payment is to focus on getting “free” money in the form of grants and gifts. Let’s face it, your search will be long and hard, and there’s no magic bullet here. But if you are able to land a huge grant or gift money in the end, your business will smile.
Be wary of services that promise to find you open government grant opportunities. You would be better off doing your homework yourself to locate programs that are available for your type of business. If you are into a business related to healthcare or technology, or a retail business in a low-income area, your chances of qualifying for grants are brighter.
Other forms of “free” money include free office space from a relative or former employer, free services from friends or colleagues, and so on. These might apparently not seem like the money you need, but they will actually help you keep the money you could have spent on them and use it for other things instead.
3. Target microloans and web-based loans
The internet now abounds with non-bank lenders that offer microloans to small business entrepreneurs. These loans typically fall within the range of $5,000 to $25,000. Some of these lenders are excellent sources of capital for those with poor credit. And here’s the catch:
“Most web-based lenders will report your payment to credit bureaus, which means if you make your payments in a timely manner, your credit score will go up.”
Each site offering web-based microloans offers a twist on how they price loans and spread risk to lenders, so you need to compare rates as well as terms and conditions before making a final choice as regards whom to deal with.
However, you must bear in mind that your credit score might still haunt you when you try to borrow microloans or web-based loans. Not that you will be denied the loan outright, but the interest rate on your loan will tend to be higher compared to what obtains for those with high credit scores. The interest rate for individuals with poor credit can be as much as 20 percent.
However, there may be subsidized micro lenders in your state or locale that offer friendlier and more flexible terms. This flexibility of payment might matter more to you than getting a lower interest rate.