In the competitive world of businesses, credit is king. This makes it extremely difficult to qualify for a small business loan if you have bad credit. However, there are numerous entrepreneurs and small business owners with less than stellar credit that are able to get their start-ups off the ground.
You might have a history of making poor credit decisions, or you simply may have yet to establish a credit profile worthy of consideration. Whatever the case may be, all hope is not lost, because there are a few ways to receive approval for a personal loan or small business loan and fund a small business with bad credit. Here are some ways you may be able to fund a small business, regardless of your credit profile.
Contact the SBA
If your credit leaves much to be desired, the first step you should take when seeking a small business loan is to contact the U.S. Small Business Administration. There are several loan programs offered by the SBA that are specifically designed to assist entrepreneurs and small business in acquiring small business loans.
However, the SBA does have certain credit requirements that you must meet in order to be approved for one of their loan programs. Unfortunately, if your credit score is below a certain threshold or if you have minimal credit history, you may not qualify for the SBA’s lending programs.
Consider Non-Traditional Lenders – That’s Us!
If traditional financial institutions, such as banks and credit unions, deny your loan approval, which is very likely in today’s lending environment, you might want to consider non-traditional lenders that specialize in financing small businesses. If you have a profitable business idea, a solid business plan, and have performed extensive market research, there are angel investors, venture capitalists, and mezzanine investors that can provide you with the funds you need.
Contact Advance Funds Network today and we can provide you with debt financing or equity financing options. We may be able to provide you with debt financing, in which you simply pay back the loan capital with interest just like a standard loan. Venture capitalists usually lend money via equity financing, in which they receive a certain stake in the company in exchange for their funding. Mezzanine investors provide a mixture of debt and equity financing. The latter is usually the chosen route, because it allows you to avoid over-extending your business while keeping a large percentage of the pie at the same time.
Use Your Assets to Secure a Loan
Many small business owners use their personal assets or existing business assets to help them secure small business loans. If your small business already has machinery, real estate, or any other hard assets, you can use them to secure a small business loan. If you take this route, bear in mind that the lender can legally sell those assets to secure payment.
If you have yet to establish any business assets, you may be able to secure a small business loan with personal assets as well. Some people put their homes up as collateral. However, this is usually the last option, because people run the risk of losing their home should they default on their business loan.
Use a Personal Guarantee
If you have a significant amount of personal assets, but do not want to directly use them as collateral, some lenders may offer you a small business loan by merely providing them with a personal guarantee. A personal guarantee entails promising that you will do whatever is necessary to avoid defaulting on the loan, including selling your assets. Personal guarantees are not as common due to the added risk taken on by the lender, but they are used from time to time and have proven to be another lending option.
Look into Government Grants
Government grants may provide you with a final option. There are thousands of grants available that offer certain businesses free money with no strings attached. You simply have to have a business that qualifies for a particular grant. You can visit www.grants.gov for information on all of the grants available. Just keep in mind that being approved for a government grant is a tedious process and you will need a solid business plan in place just to be considered in the competitive grant arena.
As you can see, there are numerous small business financing options for those with poor credit. However, as a small business owner, improving your credit will greatly increase your loan options and help you secure the best interest rates possible. It may take a while for your credit score to improve considerably, but the long-term benefits will prove to be more than worthwhile.
