Business loans with bad credit are possible today. This was definitely not the case around ten years ago since that was when financial institutions did not want to take any chance with people that had bad credit scores.
One of the important things that need to be known is that bad credit is practically defined as having a score that is lower than 629.
If you are faced with such a situation, we present the options that are available for you and that can be considered as the business owner. However, remember you have to be careful. There are many things that you have to take into account when you opt for a bad credit business loan. This includes shorter repayment terms, more frequent payments needed and higher interest rates. The cash flow of a business can so easily be negatively affected if you do not do the math right.
The good news is that bad credit business loans do give you access to some really creative solutions that can be used to get out of a tight jam or even expand.
Short-Term Bad Credit Business Loans
These are great if you want to get a loan with a structure that you already know. Usually, these loans have a repayment term of 3 to 18 months and you get to pay them back with weekly or daily (business days) ACH payment.
The main disadvantage is that this bad credit business loan can be quite expensive. Also, cash flow can be easily affected due to frequent needed payments. You basically get fast cash but it is expensive.
Short-Term Bad Credit Lines Of Credit
These offer fast access to capital. Repayment terms are usually covering under 18 months and are highly accessible, even when you have bad credit. The APR is higher and credit limits are generally lower than what you would expect with a regular line of credit. Even so, the money can be instantly used and the interest is lower than with the short-term bad credit business loans.
Bad Credit Invoice Financing
A great way to offset the bad credit score is to present collateral. Contrary to what many business owners think, this does not necessarily mean a car or a house. Invoice financing gives you money in advance for invoices you send out. This is a rather self-secured business loan type that practically offers cash before the client pays. In most cases, you are offered an advance of around 85% of an invoice amount’s outstanding value. As the client pays, the rest of the 15% is obtained, with fees being taken out.
Generally, the invoicing option brings in a flat fee of 3%, plus 1% for every single week in which an invoice stays outstanding.
Bad Credit Equipment Financing
When you want to take out a business loan in order to buy equipment, this is the option to take into account. The equipment you will buy is actually used as loan collateral. Lenders do not really care about bad credit scores because of the use of a collateral. The business equipment loan is really similar to the car loan. You receive the needed cash in advance and you pay it back with extra fees over a time frame.
The big advantage is that you will own the bought equipment as soon as the loan is paid and you can use it as soon as you buy it. This means the option is better than leasing or renting equipment.
Bad Credit Merchant Cash Advances
A merchant cash advance (commonly known as MCA) is very common among businesses that are faced with bad credit problems. In fact, whenever looking for business loans for bad credit on the internet, there is a huge possibility you will find cash advance companies.
It is really easy to get an MCA, even if credit score is pretty low. However, this is a pretty expensive bad credit financing option for businesses. You need to be cautious when you apply. The financing company will advance you some cash. Then, the amount is paid, plus interest, from daily credit card sales.
Simply put, lenders take out a percent of the daily sales. You practically pay less if business is slow and more as business booms. However, because of the fact that lenders take cash from sales, the MCA will quickly affect cash flow.
Bad Credit Business Credit Cards
When you have poor or limited credit, business credit cards are pretty helpful. It can be coupled with a loan or offered on its own. You will get access to some extra spending power as a credit line. It can be used in order to cover daily business expenses.
A really important thing to remember about the business credit card is that it helps build credit. This means that you will eventually get better interest rates as you responsibly use the business credit cards. What is really important is to never use the credit card unless you absolutely have to. Credit reporting bureaus notice the behavior and credit score increases.