Bad credit can be a major obstacle for small business owners looking to get a loan. However, there are a number of options available for bad credit business loans.
While traditional loans typically rely on the strength of a credit score to determine eligibility, bad credit business loans give merchants with less than ideal credit profiles (a personal FICO score below 660, or even a strong individual credit rating attached to a start-up with no credit history) the ability to strengthen their applications by adding additional trust factors to demonstrate borrowing worthiness.
For established businesses that already have cash flow, a merchant cash advance is an excellent choice. With this option, a merchant provides the financials of their business and a loan is granted in exchange for a percentage of the business’ future sales.
Business lines of credit are revolving loans that can be attained with similar ease of application and qualifications as a typical credit card, but with superior interest rates. And just like a credit card, full repayment is at the borrower’s discretion and the business will always have access to the available amount of credit on the line as long as the minimum monthly payment (at the very least) is made on time.
A valuable asset such as property, cash reserves, precious metals, stock, cash-out life insurance policies, vehicles, business equipment, or even inventory can be offered to the lender to back a loan as collateral if the merchant defaults on their payments. Due to the tangible value of collateral, these types of loans are typically offered at lower rates for merchants, with the caveat, of course, being that their valuable assets become at risk for loss.
Invoice financing options are collateral loans where a cash advance is granted to the merchant based upon a percentage of each outstanding invoice of the business. A fee is typically charged for this service.
For seasonal businesses with predictable busy and slow periods, a short-term working capital loan makes sense to address everyday business expenses like payroll, inventory, taxes, and rent during the slow seasons, bridging the cash flow gap before being paid off in full with the profits earned in the subsequent busy seasons.
Start with an honest self-assessment of your business and credit score. What other options and assets do you have at your disposal that can strengthen your profile? What type of loan are you most likely to get with what you have?
Is the rate variable or fixed? What is the total cost of capital when everything is paid at the end of the term? Is the opportunity cost of getting what you need the loan for NOW worth that interest amount paid?
How established is your business? If your business is a startup with poor credit, your options are a bit more limited than if your business has a history of sustaining itself and generating revenue.
Do you have established cash flow to rely on? How accurate is your budget? Realistically speaking, if you had to budget in your loan payment today, could you handle that payment? What adjustments can be made now to ensure that the future payment can be comfortably handled?
Where will you get your loan from? What is important to you in the application and relationship process? If a human-to-human interaction complete with personalized loan servicing is important to you, then a traditional lending institution may be the best fit. If streamlined and expedited funding is most important, then online lending may be the way to go for you.
Where you stand with the credit bureaus will determine your next steps in building your loan package. Perhaps there is an unsecured loan solution for you and your business where you currently stand. If not, use today to establish healthy credit habits and monitor and maintain your credit profile with tools from your bank, credit card provider, or even a third party app. Everyone is entitled to one free copy of their credit report from all three bureaus once a year. Take advantage of knowing your personal and business credit score. Research your options and eligibility requirements.
Compare your total application package with the requirements for each individual lending option, as well as with potential combinations of options. Move towards the best deal that fits your needs. At the end of the day, money talks and the best rate with the best terms in the best timeframe should always win. Be aware that sometimes the best deal could be no deal at all.
Take your time to fill out the application clearly and accurately. Provide all requested documentation in a timely manner. How cooperative and thorough one is in this stage of the loan process can be taken as an indicator of future behavior within the relationship with the lender. Use every opportunity to demonstrate your excellence and capability.
Wake up to a larger bank account and diligently follow your plan. Use this money wisely towards increasing your business’ profitability!
With your new profits in tow, make your payments on time in accordance with the terms and conditions agreed to. If possible, pay an amount or percentage over the amount due for each payment to reduce the overall interest paid over the life of the loan!
A loan at its core is a relationship with a financial institution, and like any successful relationship, it’s important to go into it knowing you and your business’ needs and being sure this relationship will fulfill them.
Some factors to consider when choosing a loan include:
Based on where you and your business stand, does it make sense to take on a short term loan (1-3 year repayment) or a mid-term loan (3-5 years)?
Fees and interest rates are where the banks make their money. Look beyond the per-month figure that seems to fit in your budget, and be sure the amount paid at the end of the loan is truly worth the cost.
More often than not, banks will offer loan amounts that fit within their risk threshold and don’t always line up perfectly with what an applicant requested. In that event use this opportunity to creatively reassess your balance sheets to cut costs, streamline operations, and make things work for the business.
At PaymentCloud, we have a range of options that can help you succeed at any stage of the business life cycle, including start-up business loans for bad credit.
First and foremost lenders want to be sure a business is viable and generating money.
Building off of revenue generation, the next most important financial aspect lenders want to know is - how cash flows in and out of the business and how strong the liquidity of the business is at any given point in time.
Lenders use business plans to determine how credible the business is based on the story within the presentation. This persuasive document illustrates how well the owner understands their company’s past, present, and future and gives further insight into how capable the owner is at rising above weaknesses and limitations within themselves and their business to thrive in the marketplace.
Securing the right loan won’t just give you working capital and the breathing space your balance sheets need. If done well and done right, getting the right business loan for bad credit can raise you and your business’ credit profile over time ensuring superior rates in the future.
Ensure all of your payments on every liability are on time and do your best to reduce your total debts and overall debt ratio. Take measures to get your business credit profile on track by properly registering the entity and applying for business credit where possible.
Are your numbers, research and projects commensurate with your business type? Make sure that the figures are in line with your business’ actual performance to give the lender confidence you have a good feel for your business’ capacity, and by the same measure, prove your capacity to handle and pay back the loan.
Maintain good money habits to increase your credit score. Flesh out a team of experienced partners to boost the business’ overall application package. Creatively assess what other assets and tools you have at your disposal that can help entice the bank towards approval. Include reference letters from current creditors and vendors to demonstrate your character and capability to honor financial commitments.
If your business is ready to take the next step, there's never been a better time to get in touch with our team. Call now to find out more about bad credit business loans.