Bad credit and loan applications are like Apple and Microsoft– they don’t blend together. When you’re searching for a business loan, finding a lender that can get you funding with bad credit can be an infuriating process. You might have come across terms like “guaranteed loan approval” and “bad credit loans”, thinking this could be a solution to all your financial problems. However, that’s not the case. Before applying for a business loan with bad credit, use extreme caution and do due diligence.
The Guaranteed Approval Misbelief
In reality, there’s nothing like guaranteed approval for bad credit small business loans. Bad credit doesn’t mean you can’t secure financing for your business. However, you should be aware of any assertion of guaranteed loan approval for business loans.
Bad Credit Small Business Loan Options
While there’s a misbelief of guaranteed loan approval for bad credit, you will find many lenders that specialize in working with bad credit borrowers. Regardless of your poor personal or business credit score, there are viable financing options available to borrow money for your small business even with bad credit.
Before searching for those viable options, know these such financing options pose a high risk for the lenders due to the likely possibility of your default on the loan. With that said, lenders charge high-interest rates and less favorable terms than you might expect with traditional financing. Irrespective of your credit situation, a good rule of thumb is that you should carefully read the loan terms, conditions, and any other fine prints before you make a loan application.
Here are the three best bad credit small business loan options to consider for your small business:
- Small Business Credit Cards
Qualifying for small business credit cards is easy, even with a bad credit score. All you need is to sign a personal guarantee to open a credit card account. Business credit cards are a great way to finance your small business when you have a good personal credit score with poor business credit.
If your business and personal credit score both are in bad shape, your financing options may be more limited. In such cases, qualifying for secured business credit cards can be your best option, which requires a security deposit, with lenient qualification requirements. If you can manage the account well, a secured business credit card can help build your better business credit for the future.
2. Alternative Lending
Getting approved for business financing options with traditional banks and credit unions will be challenging. With the alternative lending industry on the rise, you will plenty of lenders online that are willing to work with poor credit borrowers – offering a more realistic financing option based on your situation.
Online lenders take into account different factors instead of just your credit score. If your business has a stable monthly income, a solid business plan, and good business history, your chances of qualifying for bad credit small business loans from alternative lenders may improve. Several online lenders provide quick access to small business financing, including:
- Merchant Advisors
The loan application process is simple and less documentation requirement and can be completed within minutes. You can get the decision within 24 hours and funding in as little as 3-5 days even with poor credit scores.
If you’re unable to qualify for traditional or alternative lending, you can get your business funded with crowdfunding – a non-traditional way to finance your small business. There are two main types of crowdfunding options:
- Reward Crowdfunding
- Equity Crowdfunding
In Reward crowdfunding, you approach your potential customer base and convince them to make small investments in your business in exchange for their products or services as rewards. In Equity Crowdfunding, you get capital in exchange for a certain percentage of your business equity.
The most popular crowdfunding platforms include Kickstarter, Indiegogo, Patreon, GoFundMe, Crowdrise, to name a few. Using these platforms, you can launch and manage a crowdfunding campaign for your small business. The best thing about crowdfunding is that it is not a loan and you don’t have to repay it. You get small business capital in exchange for either with a reward or business equity.
However, crowdfunding is not for every business and far from a guaranteed funding option. If you’re unable to fulfill your crowdfunding campaign goals, you’ll lose the money you secure for your campaign.
Building Better Credit with Bad Credit Small Business Loans
With a good business and personal credit, you can easily qualify for better business financing options. With a good credit score, you will not only get quick funding but also lower interest rates and favorable terms. Are you looking to build your small business credit? Here are some super ways to improve your small business credit score.
Moreover, it’s also wise to have charge of your personal and business credit score. You can get your credit reports from Credit Bureaus (Dun & Bradstreet, Experian, and Equifax) to monitor your credit for any inconsistencies.
Building and maintaining a good credit score can help unlock flexible and affordable financing options for your small business. Since lenders care a lot about it, so should you as well.