According to a recent report, it is getting easier for small business owners to obtain business loans from traditional banks – if they are considered to be creditworthy. Since small business funding plays such a big part in job and economic growth, this is great news for the economy. However, due to the financial crisis experienced several years ago, bad credit is still a very big struggle for a large percentage of small business owners.
Access to working capital is an obstacle most business owners face when trying to grow their business. Without it, businesses cannot hire new employees, buy or upgrade equipment, boost their marketing or purchase additional inventory. But what can businesses do if bad credit is the reason they keep being turned away by banks? Thankfully, alternative lenders have stepped in and offered business owners the opportunity to secure the business loan or line of credit they need, regardless of bad, personal credit.
Consider the following options that can help you obtain the working capital you need, regardless of bad credit:
According to U.S. Small Business Administration (SBA), if a business has regular bank deposits,it can put its cash flow to work with revenue-based loans. “This program is based on the deposits going into the business bank account on a monthly basis. Typically, a business can obtain a business loan equal to 10% of its annual gross deposits regardless of having bad credit.”
One of the advantages of this program is that funds can be obtained in approximately 7 days. It also requires no collateral, financials or tax returns. In addition, the repayment process involves small, daily increments via ACH from the business’ bank accounts. You should keep in mind, however, that the loan term is typically 18 months, and rates can be higher than the rates with a traditional bank.
Some personal credit challenges can be overcome by having a business partner that is also a credit partner. If this business partner has strong credit scores, they can help you obtain lines of credit in the form of business credit cards. Keep in mind that choosing an individual interested in participating in your business is ideal.
In addition, according to SBA, “This method does bring risk to the credit partner because they are cosigning with the business to obtain funding.”
A merchant cash advance is a viable option for those with bad credit. This type of funding program provides business owners with quick cash in exchange for a portion of their future credit card sales. This program works well for businesses that have regular monthly credit card sales, but struggle with personal credit. With alternative lender First American Merchant, for example, securing a cash advance with bad credit is simple and hassle-free.
Keep in mind that selecting the right merchant cash advance provider is very important. Some providers will cost as high as 38%. In addition, some merchants take a fixed percentage of your daily credit card receipt volume until the advance is paid back. With First American Merchant, on the other hand, merchant’s payments are a percentage of their daily sales; thus, there are no fixed monthly payments.
If bad, personal credit is making it hard to secure the working capital your business needs, it might be time to walk away from the bank and consider alternative funding sources. Thoroughly researching each option is key. In the end, you need to find a source of business funding that best fits your business’ needs and situation.