Are you trying to figure out how to fund your business? If you have a less-than-stellar credit score, you might be wondering if there are any financing options available to you. The good news is, “bad credit loans” can be a viable solution. This article will help you learn more about start up business loans with bad credit.
It can be quite challenging to get a startup loan for your business if you have bad credit. According to the NSBA study, at least 20% of small business loans are rejected because of bad credit. Loan companies will pull your credit score, and if it turns out that your score is low, they may reject your loan application or charge you a higher interest rate.
When trying to get start up business loans, particularly bad credit loans, you might have to take your time and extend your search to other lenders than the more popular or traditional lenders like banks. It would be best if you also tried to build up your credit score even as you look for a lender.
Types of Loans That You Can Get With Bad Credit
Having a bad credit score does not mean that you should give up on your business. If the traditional lenders cannot give you the money you need, here are several other options that you can consider when you want a startup business loan with bad credit.
1. Family and Friends
One of the very first places that you can run to is your inner circle.
According to research, at least four out of every five businesses have received their funding from their friends, family, or both. You might have to do some persuading, but if it worked for another person, then you might be lucky too.
The good thing about getting your startup loan from your inner circle is that they will base their decision on how well they know you and will not pull up your credit score. If you have proven yourself to be trustworthy and responsible, then that is all it will take for you to get your loan.
2. Microloans and Nonprofit Lenders
These two lenders mainly focus on the minority or somewhat disadvantaged businesses.
If you have bad credit, you might qualify for a loan with microlenders and nonprofit lenders. This is a good way to get a reliable loan with favorable terms that will allow you to grow your business and, at the same time, build better credit.
3. Credit Cards
Small business owners often use credit cards to get some funding. In case your credit is not stellar, you might only be limited to secured credit cards. These cards have higher fees when compared to regular credit cards.
You should remember that credit cards are expensive if you have bad credit. This is mainly because the credit card issuer determines the annual percentage rates based on your personal credit scores. Do not entirely rely on it for financing.
4. SBA loans
There is a Small Business Administration (SBA) loan program in the U.S, which can give up to $50,000 to small businesses and also gives loans to not-for-profit child care centers.
There are several providers on this program who are always ready to help.
The biggest challenge with this loan is that the funding may not be enough for all who want to borrow.
There are two main loan programs; the 7a program, which offers loans to startups, and the 7a SBA loans, which provide funding to already established businesses against collateral such as equipment or real estate. They can sell the collateral should you default.
5. Personal Loans For Business
A good number of startup businesses get their financing through personal loans. This has been made easier by the growing number of online lenders. Personal loans, however, have high APR’s, especially if you have bad credit.
These loans are still a good option, but you can consider them as a last resort because you will end up paying too much interest. If you are not lucky enough, you can also consider getting somebody else with a good credit score and good income to cosign for you.
6. Grants
Though not loans, applying for small business grants is yet another way of getting financing for your startup business. The catch here is, grants are funded by taxpayers, and this means the approval is quite strict. They might not be as easy to get, but since it’s free capital for your business, it is worth the try.
7. Crowdfunding
Crowdfunding is today a very popular way that small businesses use to get the money that they need. This has been made possible with several sites that allow business owners to lobby for cash through online campaigns.
With this type of funding, instead of paying back your donor or sponsors, you give them gifts, and thus the name “rewards crowdfunding”. There are other new avenues of getting startup capital that are opening up, which work just the same way that crowdfunding does.
This is an excellent way of also attracting investors to your business. With the new security regulations in place, small business owners can get the chance to reach some top-notch investors and not just the accredited investors
8. Venture Capital
Another available option is to get venture capital. This is where you approach an investor who, if they are interested in your business, will give you the financing you need in exchange for equity in your company.
Since the investor has a stake in the company, they might also want to take up a more active role in decision making. These kinds of investors are usually more experienced and have a lot to bring to the table, including their money.
You will need to have a business plan and other materials that the investor can use to know more about your business and if they are making a good business deal.
Get the Right Loan Option for Start Up Business Loans with Bad Credit
Do not get discouraged when looking for start up business loans with bad credit. The truth is that, though it might seem a little challenging, it is still possible to get the startup loan you want for your business regardless of your credit score.
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