Starting and running a profitable business is tough. Each year, more than 20% of businesses fail before making it through their first twelve months of operation. While making a business work isn’t easy, it is possible — if you’re willing to put in the work. But to make a business work, you need cash. Finding the money to get your new venture up and rolling is usually one of the most difficult tasks — especially if you don’t think you have good enough credit to take out a business loan. If you’re trying to find a way to fund a new business, read on for a closer look at how to get a business loan with bad credit.
If You Want to Get a Business Loan with Bad Credit…Be Prepared
Whether your credit is good or in need of serious repair, it’s important to have a solid business plan prepared before you begin to seek funding. If you haven’t started your business yet, be sure to create a detailed plan and identify how much money you’ll actually need. If you are in business already, gather and organize your financials before speaking with a lender.
Work On Rebuilding Your Credit
Even though you’re borrowing money for your business, it’s still important to have your own finances in order. If you have debts that could be paid off — at least partially — be sure to pay off as much as you can. You’d be surprised how much small changes can affect your credit score. You can also work with a credit repair expert to help you get inaccurate and out-dated information removed from your credit report. This will help increase your credit scores and chances of obtaining a business loan.
Use a Loan Matching Service
Once you have a good business plan and your financial information in order, it’s time to begin doing some research. Just like you researched your product and market before starting your business, it’s important to understand your lending options. Try using a website like Bonsai Finance or Lending Tree to compare your lending options and interest rates.
Alternative Business Loan Options Are Available
There are lots of alternative business loan options out there. Here a few of the most options for new or smaller businesses.
Microloans
A microloan is one of the most common funding options for business owners with bad credit. Even if you have filed for bankruptcy, you may still qualify for a microloan for your business for up to $50,000. You will need a business plan and at least 3 years of financial projections. If the business is already established, you may also need to submit your business tax returns for the last two years.
Merchant Cash Advances & ACH Loans
A merchant cash advance is a “business loan” based on your current revenue (i.e. credit card transaction and ACH deposits). If you have an established business and can provide your last 6 to 12 months of bank or credit card transactions statements, you may be able to qualify (regardless of your personal credit history).
Secured Credit Cards
Secured credit cards are another way to get funding. Secured credit cards help you rebuild your credit history after you’ve filed for bankruptcy or damaged your personal credit in any other way. You won’t get a huge amount of business funding via a secured credit card but something is better than nothing.
Friends and Family
Surprisingly, this is one of the most common ways to come up with funding for a new business. If you know someone who might be willing to help, it never hurts to ask.
Your Turn
If you want to get a business loan with bad credit, you may need to do a little extra work to get one. But, if you’re able to start a profitable business, the reward is definitely worth the effort. Trying to start a business of your own? Check out the rest of our articles for more on entrepreneurship and running a small business.