Whether you fell on hard times due to a job loss or medical emergency or you simply made mistakes with credit in the past, having bad credit can haunt you for years.
That doesn’t mean that it’s not possible for you to pursue your dream of owning your own business. With bad credit business loans and other financing options, many people with poor credit scores and blemishes on their credit reports still manage to obtain financing for start ups.
Here are some of the funding options that you can explore to finance a business despite having bad credit:
If you need funds to purchase equipment to get your start up off the ground, you can take advantage of equipment leasing. With an equipment lease, a leasing company purchases equipment and then allows you to use it for a set period of time in exchange for a fee. When the lease is up, you can usually renew, look for new equipment or purchase the equipment at a discounted price.
Sale Leaseback Financing
Some start up business financing companies will allow you to use things you already own as collateral for a working capital loan. It can be equipment, vehicles, boats, CD, jewelry etc. As long as you own it AND it still has some value! This program isn’t good for using things like computers or servers as collateral. That kind of equipment loses its value too quickly. The best types of equipment for this program are manufacturing equipment, titled equipment or real estate.
Credit card financing.
If your business accepts credit cards, you may be able to get a loan from your a merchant cash advance company. Its not based on your own personal credit, so even if you have a very low credit score, this program is open to you. The company will provide you with a set amount of money against your future credit card sales. Interest rates can be very high with these types of loans; however, most businesses can qualify for them.
A factoring company will use your business accounts receivables in order to give you a working capital loan. This type of financing is based on the credit worthiness of your clients. Factoring services are utilized by a lot of different types of companies. From staffing services to manufacturing companies.
Purchase Order Financing.
This type of financing is usually used by manufacturing companies. You receive a large order for your product but you need money to compete the manufacturing process. A purchase order company will advance money based on the strength of who issued YOU the purchase order. Its not based on your personal or business credit.
Peer to peer lending.
Social lending or peer to peer lending is becoming one of the most popular types of bad credit business loans. With these types of arrangements, you create a profile on a website with the story of your business and information about your financial status. Then, people can review your profile and send you a loan proposal that includes a term and interest rate. If you agree to the terms, you enter into a contract and then receive the funds and make payments to the lender through the site. You’re more likely to have success with social lending if you’re looking for a small amount of money.
Crowdfunding is similar to social lending in that you solicit funds from users of a website; however, crowdfunding sites allow you to pool small investments from dozens to thousands of people. You don’t repay the money that’s contributed to your campaign. Instead, you provide different types of rewards to those who contribute. Successful crowdfunding campaigns require engaging promotional videos and effective social medial marketing.
Micro credit organizations.
If you only need a small amount of money, you may be able to qualify for a micro loan. Micro loans are bad credit business loans that are provided through a number of micro credit organizations. The loans are specifically for individuals who do not qualify for conventional bank loans.
No matter what type of bad credit business loans or other funding methods you pursue, be prepared to talk openly about your credit history. Being honest about your financial past and prepared to discuss both what happened and how you’ve made progress improving your credit can go a long way toward helping you obtain the financing you require.