How to receive business financing even with a bad credit history

September 11, 2009

With the current credit crisis occurring globally, many people are afraid to look for a business loan to expand or start a new small business because they think that their business loan applications will be automatically rejected. While it may be harder to secure a business loan, or any other type of loan, there are ways to receive merchant funding and different types of business loans. In reality, business loans are actually easier to secure than other types of loans so if you are looking for a creditor you can breathe a sigh of relief because as long as you have an action plan there are many ways to receive the business financing that you need.

How to receive business financing even with a bad credit history

With the current credit crisis occurring globally, many people are afraid to look for a business loan to expand or start a new small business because they think that their business loan applications will be automatically rejected. While it may be harder to secure a business loan, or any other type of loan, there are ways to receive merchant funding and different types of business loans. In reality, business loans are actually easier to secure than other types of loans so if you are looking for a creditor you can breathe a sigh of relief because as long as you have an action plan there are many ways to receive the business financing that you need.

Before you start looking for merchant funding or a business loan you need to look over your finances and decide what you need and what your business loan standing is. The difference between your working capital and the amount that you suspect you will need in order to expand or start your business is the calculation you will need in your hands in order to find the business loan that is right for you. You also will want to take a look at your credit score as your overall credit score will influence the type of loan that is best for you to take once you start looking seriously into your business financing options.

The good news is that even if your credit score is not great, you do have many options still open to you when it comes to business financing. Two of the best options for people who have low credit scores are a merchant cash advance and small business loans provided by the government. In both of these cases your credit will not be as important as the equity you have in your business which is why your credit score will not necessarily role you out for a business loan. Before you decide which is best for you, you will want to read the following descriptions of both.

Merchant Cash Advance (business cash advance)

It is usually advisable to get a merchant cash advance only if you need a small amount of money to supplement your working capital and do not expect to need more merchant funding immediately after you receive your first business cash advance. The interest rate on a merchant cash advance is very high, but this will not affect you as long as you pay back your loan quickly within a few weeks which is generally the expected length of time you have on the business financing you receive.

The general idea of a business cash advance is to provide you with a short term loan on a reasonable amount of money that you expect to be able to pay back shortly after you make the improvement. For instance, if you need to install an online payment processing software on your computer and need the upfront installation fee you may consider taking a merchant cash advance. Then, as soon as your business makes profit in a few weeks you can pay it back.

The advantage is that your credit score will not be a large indicator in the final decision of a merchant cash advance, but you do need to make sure you can pay it back quickly as it is easy to end up paying almost double the amount of your loan with the high interest rates if you default. Therefore, you should only consider a merchant cash advance if you know you will be able to pay it back.

Small business loan or grant

If you are just starting up a business without an excellent credit history or if you are expanding a business without great credit, you may consider looking to the government for aid. This is because the government offers many small business loans since local businesses help increase the US economy. To qualify for a small business loan from the government you do not need to have excellent credit, but you will have to create an action plan sometimes referred to as a business plan. Once you provide proof that you have the blueprint for a viable business venture they will consider offering you business financing.

Even better, if you are in drastic need of a small business loan and are able to display a well thought out plan for improvement or a new business, you may even qualify for a small business grant instead of a small business loan. Of course, if you receive a grant you will never have to pay back your business financing which makes this the best situation you can find yourself in. Thus, you should explore this option thoroughly before you explore any other type of business loan. Even if you only qualify for a small business loan since it is through the government the interest will be controlled making it a better option for you in the long run.