Best Business Loan Options For People With Bad Credit

Most banks are opposed to lending money to borrowers with bad credit and it is similar for businesses as well. Therefore, if you are in need of some money to scale up your business, you will have to find options other than traditional lending. 

Fortunately, alternative lenders may be more than willing to approve your application. These lenders offer options other than big banks or credit unions, setting no minimum credit score specifications and think about factors like time in business or revenue for approval.

If you can prove that you can pay back your loan, then you will likely get to hear a big “YES” to your loan application. For a little help, below are some of the best business loan options for borrowers with bad credit. Read on to know more!

Invoice Financing

This business loan option allows borrowers to get funds from your outstanding invoices. Generally, the lender buys your outstanding invoices, giving you a percentage of the loan and possessing a portion of the amount until the unpaid invoice is paid. 

Additionally, lenders will likely seek your customer payment history to find out the probability of them making timely payments to approve your application and set the interest rates. Take note that the interest rates can be extremely high relying upon your customer payment timing and personal credit. 

What’s more, weekly fees accumulate on the loan until you pay back the loan. Also, you will need to consider the fees and interest rates on the advance to determine whether it is a great option for funding your business. 

Microloan

This type of loan refers to short-term and small loans aimed at those with low capital or small businesses. More often than not, loan amounts are at least 50,000 dollars so they are much easier and smoother to get approval.

The United States Small Business Administration provides microloans that, for the most part, can be used for inventory purchases or working capital. The microloans offered by SBA cannot be used to refinance the outstanding debt or buy real estate. 

Most non-profit organizations and credit unions offer microloans, as well, and might have limitations on how you can use the loans. If you qualify, microloans are one of the most affordable business loan options available. 

Merchant Cash Advance

If you are in need of money immediately, merchant cash advances might be the right solution for you. With this business loan option, the lender loans you money based on your expected sales.

This loan option can be paid back in two ways. First, you can choose to repay the loan from your future debit card sales or credit. Second, the loan can be repaid by setting periodic transfers from your account. 

Make sure to look into the interest rates. Avoid merchant cash advances with extremely high-interest rates, particularly those with very high APRs. Take note that there is no benefit or advantage to repaying your loan early, other than improving your cash flow. Find out if merchant cash advances are available in your area. 

P2P Lending

P2P lending is a type of business loan wherein many different investors utilize an online marketplace to invest in a loan. These investors review your profile and application to determine whether to invest in your loan. 

Although your loan might be financed by many investors, you will only have one loan and a single payment. Compared to traditional loans, the application process for peer to peer lending is much faster

Also, you can access your capital right away compared to the conventional lending process. However, you might need to secure the loan, requiring you to put your valuable items and personal finances at risk if your company defaults. 

Another thing, you might have to pay extremely high rates on the loan, which is somewhat predicted with any business loans for bad credit. 

Friends And Family

Relying upon the amount you want to borrow, you can undoubtedly ask your family members and friends to get the money you need to for your business. However, the disadvantage is that you might have many different loans to pay back. 

Also, you need to consider the effect on your relationship if you are unable to repay the loan or your business fails. Additionally, you can get a written loan agreement to protect your relationship. 

Takeaway

You need a solid application to successfully get a business loan, specifically if you have bad credit. Before applying for a business loan, there are a few steps you might need to do to boost your chances of approval. 

For example, improving your personal credit, building your credit score, writing a solid business plan, and boosting your creditworthiness. What’s more, ready all the documents needed so that you won’t have any troubles during the process. 

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