During tough times your business can take a hit to its credit score. If you have had a tough time making debt payments in the past, it can hurt your ability to be approved for small business loans in the future. And even if you are able to qualify for a business loan, you may find that your only choices come with high rates and fees. But there are options. In this article, we’ll discuss how to get a working capital loan with bad credit.
Loans for Those with Bad Credit
There are a few alternatives to conventional loans that you may be able to tap into if you are having to look for loans for poor credit.
- Invoice Financing
One way to potentially obtain a business loan with poor credit is to put up some collateral. Collateral helps guarantee a lender that they will get their money. Your invoices can be one form of collateral. With this option, a lender will advance you money against your outstanding invoices. Generally, lenders will offer 85% of the outstanding amount to you as a cash advance. Then, when your customer pays you, you pay back your loan and any fees and interest. Pay close attention to terms for these loans, as they can be quite steep.
- Business Credit Cards
All business should have a business credit card. Not only for everyday use, but for cash emergencies. A credit card can allow for quick access to cash thru use of a credit line that can be used for business expenses. In addition, as you use the card you will be building (or rebuilding) your credit so you have more and better options for small business loans in the future. Just make absolutely sure you make your payments in full and on time.
- Short-Term Loans
If you have bad credit, short-term loans are a potential solution, as long as your credit score is over 500. These loans usually have 3- to 18-month terms and can be quite expensive, with high interest rates and fees. Understand that short-term loans often require payments daily or weekly, which can put a strain on cash flow. The upside is that the application process is usually simple.
- Equipment Financing
Equipment financing may be another avenue for obtaining business loans for those with bad credit. These types of loans work like a car loan. You buy the equipment and pay back the loan with interest and fees over an agreed upon time period. The upside is that you will eventually own the equipment if you pay the loan, whereas if you opt for renting or leasing equipment to deal with cash flow issues, you will not have anything to show for it in the end. Equipment financing can be easier to obtain than a conventional small business loan, even with a credit score as low as 600.
Having bad credit doesn’t mean you are locked out of the financing market; it just makes it more challenging. ViewRidge Funding can help you through the process. Give us a call at (888) 241-7241 or fill out our Get Started form today.