When starting a business, capital is one of the most important things business people need. They need money to start the business and run it for around six months until the business can start making profits.
Unfortunately, many people usually do not have the money upfront, and they need to look for alternative financing methods. For many people, borrowing a loan is the most obvious solution.
However, many people, especially those who have never been in business before, have bad credit scores or no credit history, making many banks and financial institutions reject their requests.
Such people start looking for ways of getting a business loan with bad credit.
6 Ways To Start A Business With Bad Credit
Online business loans
This is one of the most common alternatives for people who have been rejected due to bad credit. Online lenders have minimal requirements for approval, better interest rates and do not focus so much on a person’s credit score or credit history.
They also have a faster approval process than traditional banks. For people who want to get loans faster or narrow down their search, there are options to search for loans given to specific groups like women and veterans.
Some major drawbacks are that online loans have shorter repayment terms and higher APR.
Credit cards for small business
Small business credit cards are perfect for helping business owners pay for their early startup costs. This is perfect for people who have a good personal credit score but are just starting their business. That is because they will get approved based on their personal credit score and not the business’s.
Most credit cards come with a personal guarantee requirement. Others also have an annual fee, and people should also consider their card’s APR.
Equipment lenders only give people loans to buy equipment for their business. They use the equipment people purchase as the loan collateral. Some of the equipment people might purchase with this type of loan include commercial vehicles, agricultural equipment, restaurant equipment, and office equipment.
While they do not emphasize the person’s credit, some lenders may require a personal guarantee.
Crowdfunding and crowdlending
Crowdfunding involves asking big groups of people on online platforms for funds. In return for the funds, the business person sends the people some of the products they sell. People get financial assistance as loans, rewards, donations, or equity.
According to Lantern by SoFi, “crowdfunding is good because it allows businesses to simultaneously raise funds and test the market. However, there is no guarantee that they will get the money they need.”
These are organizations whose main purpose is to assist new and growing enterprises to raise funds after being rejected by traditional banks. They are usually non-profit organizations with backing from the Small Business Administration SBA).
They understand the problems that business owners face as they try to get their business off the ground and give guidance to that small business on getting short and long-term success.
To find the best business grant, people need to search the market. There are offices all over the US by the SBA to help business people understand the different grants available and give advice and training.
Government programs also give business loans to people with unique challenges like veterans and people from economically disadvantaged areas.
After getting rejected by banks for a bad credit score, people should not give up but consider the different options of getting a business loan with a bad credit score. The key is researching to find the one that suits the business’ financial needs.