How to Get a Startup Business Loan with Bad Credit

One of the most challenging things that you need to do is obtain a startup business loan. This is especially true when you have bad credit. In fact, it can almost seem impossible to seek unsecured and secured small business loans as most lenders are likely to check your personal credit. Therefore, if you do not meet the minimum credit score requirements, you would struggle to get the funding that you require. However, it is crucial that you do not give up as we have prepared the ultimate post just for you. 

The Guaranteed Approval Myth

When you search for alternative lenders that provide start-up businesses that have bad credit with financing loans, you are likely to come across ads that claim to provide no credit check loans or guaranteed approval. But, it is best that you steer clear of such ads. There is no such thing as guaranteed approval. You have to practice extreme caution to stay on the safe side. It would ensure that you have nothing to worry about. If the lender you are dealing with makes any guaranteed approval promises, it is best that you look elsewhere. The last thing you want is to get scammed.

What Is A Bad Credit Score?

For those of you who have not paid attention to your credit score, it is possible that you might have a bad credit score and not even know about it. Now, it is worth keeping in mind that every lender has different guidelines for deciding what constitutes as poor, fair, good, and excellent. But, there are guidelines that dictate how the credit score should be calculated. For instance, the FICO Score provides a range of 300 to 850. In most cases, a score of around 500 is considered poor. Most lenders require you to have a credit score of 650, whereas some set their minimum credit score requirement at 680. But, there are some lenders that are more lenient than others. 

Is It Possible to Obtain a Startup Business Loan With Bad Credit?

Fortunately, it is very much possible to get a startup business loan even if you have bad credit. There are quite a few small business lenders who rely on other factors like a unique business idea or business revenue. This is why you just need to know what your options are which we will be covering in this post.

What Credit Score Is Required To Obtain A Startup Business Loan?

Unlike traditional banks that usually require you to have a credit score of at least 640, you should be able to find an alternative that has less stringent requirements. In fact, you can even expect to find a lender that offers business loans even with a credit score of 500 to 600. Besides this, other qualifications are also considered including your annual revenue. In fact, it is even possible to find a lender that does not require you to be in business for a minimum of 2 years. 

Is Collateral Required for A Startup Business Loan?

Whether you are running a startup or an established enterprise, some business lenders require you to provide some form of collateral. However, new businesses are more than likely to be asked to provide collateral. The same goes for businesses that do not have a good credit score. You must be wondering what would be considered collateral. Some examples of collateral include equipment, real estate, receivables, and invoices.

The Best Startup Business Loans If You Have Bad Credit

If you have a bad credit score, it does not mean that you do not have any options. You can still seek the necessary funding to get your business running. Here are some of the options that are available for bad credit applicants.

1. Short-Term Loans

As you might have gotten an idea by now, short-term loans cater to short-term needs and are a great option if you have bad credit. It is quite easy to get a short-term loan. If your application gets approved, you would be provided a sum of money. In order to repay the loan, you would have to pay off both the principal and the interest according to a payment schedule. You should be able to pay off the loan much more quickly. Generally, the maximum amount of time you have for this type of loan is 18 months. The exact amount of time it takes to pay off the loan depends on your fundability and the principal amount.

A great thing about short-term loans is that you can obtain these types of loans for just about any type of business purpose. This is why they are considered to be the most flexible option. You would not need to make any long-term commitment. You should be able to find an alternative lender that offers a short-term loan if you have bad credit. It should not take a long time for the loan to be processed. Keep in mind that you might need to pay interest on a weekly or even daily basis due to their short-term nature. The good news is that your loan application is likely to be approved.

2. Accounts Receivable Funding

Another alternative funding option that entrepreneurs have is accounts receivable funding. It allows you to convert your outstanding invoices into cash. If you require working capital, you will find it to be the best option. You can expect to receive a cash advance of up to 90% of the invoices when you opt for accounts receivable funding. In addition to this, you would have to pay fees every week as long as the balance remains. The remaining amount would be paid to you once the invoices have been paid off entirely. You can rest assured that invoice factoring would allow you to get the funding you need despite having bad credit. As accounts receivable funding is self-collateralizing, you would not need to provide any collateral.

3. Equipment Financing

If you require funding for buying or replacing equipment, you should consider equipment financing. It is a great option for those of you who have a bad credit score. Finding a lender who is willing to offer credit is easier than you think. As the loan would be secured through the purchase of equipment, the lender would be able to recoup the losses by taking the equipment from you if you fail to pay to clear your dues. In certain cases, it is even possible to get up to 100% of the value of the equipment. But, you would need to make a 20% down payment. 

4. Merchant Cash Advance

Online business lenders also offer merchant cash advances. If you want to get approved for a loan despite having credit, it is just the option for you. You need to understand that a merchant cash advance is an advance that you obtain for your future sales. This is why it should not be considered a loan. The lender would determine the percentage for the MCA agreement based on your daily credit card sales or withdrawal from your business.

When you choose this bad credit business financing option, you would not need to stress about your creditworthiness. Instead, the lender would only be interested in solid sales. As a merchant cash advance is easy to obtain, you should consider applying for it.

5. Business Line of Credit

If you are looking for a more flexible startup business loan with bad credit, you might want to go with a business line of credit. You would be glad to know that borrowers can obtain the maximum amount they need. The interest you owe would be against the capital you obtain. You would be required to repay the money either monthly or weekly until the line of credit reaches its maturity.

After you manage to give back the initial amount, you should be able to obtain more funding. Even though some lenders might require you to provide some collateral, you should be able to get an unsecured line of credit even if you have bad credit. It is quite common for startups to obtain a business line of credit for meeting their daily working capital requirements. Similarly, it is also a great option for larger projects. You should bear in mind that obtaining a business line of credit would not help you improve your credit score. Therefore, you will need to opt for a different option if you want to build your credit.

6. Small Business Credit Card

For quick access to cash, you should opt for a small business credit card. It does not require you to undergo an extensive process. However, your personal credit would be checked. This means that you will have to sign a personal guarantee for opening an account. As there are plenty of business credit cards that are available for bad credit, you would not need to worry about finding a lender that offers a credit card. To make sure that you benefit from lenient approval requirements, you should opt for a secured business credit card. It would require you to make a security deposit. However, it is definitely worth considering.

With a secured business credit card, you can expect to improve your credit score as long as you manage your account well. It would help you qualify for more traditional business funding once you have built a better credit score. This is why it is worth it to pay higher interest on a credit card. You can rely on it as a credit-building technique. Then, you should be able to explore more options.

7. Crowdfunding

If you are unable to qualify for a traditional or even an alternative loan, you might want to opt for crowdfunding. It is a non-traditional way of accessing much-needed business capital. You would not need to worry about having to pay any fees. All you have to do is set up an account and you should be good to go. It is definitely a great option if you need funding without having to go through an extensive loan application process.

When it comes to crowdfunding, you have different options available. If you opt for equity crowdfunding, you would need to provide shares to your company in exchange for capital. Another type of crowdfunding that you might want to consider is reward crowdfunding. It involves connecting with your customer base and convincing them to make an investment in your business in exchange for rewards such as being the first ones to get their hands on your new product or service. There is also debt crowdfunding which would allow you to obtain a loan that you would have to repay later on.

Although you can turn to online platforms like Indiegogo and Kickstarter to seek crowdfunding, many other platforms have also emerged and allow you to get the necessary funding. Hence, you can decide which platform to use to obtain capital. But, you need to understand that crowdfunding does not work all the time. You should not consider it a guaranteed source of financing. The fact is that many businesses that launch a crowdfunding campaign tend to fail. This is why you cannot solely rely on it to meet your funding requirements. You also have to bear in mind that you would have to forfeit the money if you are unable to reach the funding goal. However, there have been quite a few crowdfunding success stories. Therefore, it all comes down to how much effort you put into it.

Conclusion 

Now that you know everything about obtaining a startup business loan with bad credit, you can decide which option(s) suit you best. For the best experience, you should choose an alternative lender like South Florida Funding Group as we provide both secured and unsecured small business loans. We would guide you with the options that are available to you so that you can decide what works best for you. All you have to do is reach out to us to get started. 

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