If your score isn’t where you’d like it to be, that’s OK. There are still bad credit business loans and other financing options available for you, and we’ll explain how to apply for a business loan with bad credit.
You can obtain one of the best bad credit business loans available through alternative lenders.
Alternative lenders aren’t as risk-averse as banks. They extend capital to a broader selection of business owners, including those seeking business financing for bad credit. These firms generally focus more on your business’s overall financial health, so your credit score isn’t the end-all-be-all for their approval criteria.
Bad credit applicants with lower credit scores might find these financing options suitable.
Here’s more info from our experts to help your small business thrive.
1. Short-Term Loans
As the name suggests, short-term loans for bad credit applicants are a condensed version of conventional term loans.
You’ll receive a lump sum of money to finance the project. You’ll pay off the principal, plus interest, according to a predetermined payment schedule over a repayment term.
The scheduled length is the difference: You’ll pay off short-term loans much more quickly than a conventional term loan, which can mature up to 30 years from signing. Generally, short-term loans reach maturity in 18 months or fewer, depending on the principal amount and your fundability.
The Case for Short-Term Loans
You can use these loans for nearly any business purpose, making them a flexible option without a long-term commitment, bad credit aside.
Alternative lenders offer short-term loans for businesses with bad credit because they have less risk tied to them. Simply put, there is less time for something to go wrong that causes you to default on the loan — and less money to lose even if you do.
Lending marketplaces such as Fast Capital 360 can help you track down online small business loans for bad credit.
Because they’re generally offered to riskier borrowers, there are some caveats with short-term loans. Rather than monthly payments, you might have to pay weekly or even daily.
Also, as with all business loans for poor credit borrowers, approval is not guaranteed. If you’re denied a short-term business loan because of your poor score, there are other business funding with bad credit options available.
2. Business Line of Credit
When approved for a business line of credit, applicants are given access to funds to spend as they need them.
- You withdraw the exact amount of funds your business needs
- You pay interest only against the capital you’ve taken out
You repay the money weekly or monthly until your line of credit reaches maturity. When you’ve repaid the initial amount, you’re free to take out more. Although some options require collateral to secure them, it’s possible to obtain an unsecured line of credit with a bad credit score.
These products, which are offered through Fast Capital 360’s funding partners, can be used for daily working capital needs, as well as larger projects.
Small Business Tip:
While business lines of credit are a great way to secure business funding with bad credit, they don’t always help you build your score. Some alternative lenders don’t report to credit bureaus, so they have no way of knowing if you’re in good standing on that debt. If you want to build your credit to open up more funding options, consider applying for a business credit card.
3. Accounts Receivable Financing
Accounts receivable financing, also known as invoice financing or invoice discounting, is an alternative funding product that converts outstanding invoices into immediate cash for your small business. It’s a great option for receiving the working capital you need when you’re waiting for customer payments.
Accounts receivable financing companies typically pay you in 2 installments:
- First, you receive a business cash advance up to 90% of the total invoices you’d like to finance. Instead of paying you, your customers will pay your lender.
- When the invoices are fully paid off, the remaining amount withheld from you will be paid out. You’ll be responsible for fees that accrue each week a balance remains.
Trying to secure invoice financing with bad credit or no assets to serve as collateral isn’t as much of a hassle. If you work with clients with excellent scores, accounts receivable financing lenders can look past your credit challenges and get you the funding you need. The invoices secure the advance, making this form of financing self-collateralizing.
So if you’re wondering how to get a business loan with bad credit and no collateral, this may be the right option for you.
4. Equipment Financing
If your business needs to replace or add new equipment, financing for bad credit is available. These loans are typically secured through the equipment you’re purchasing. If you default, lenders can recoup their losses by seizing and selling the equipment.
You can secure up to 100% of the equipment’s value, though some lenders require a 10%-20% down payment.
Even with bad credit, equipment leasing and buying opportunities are still available because of the built-in collateral.
5. Merchant Cash Advance
A merchant cash advance (MCA) is a go-to financing option for business owners with bad credit. An MCA isn’t a loan but an advance on your future sales. Depending on the specifics of your MCA agreement, a lender will draw a percentage of your daily credit card sales as payment or withdraw funds directly from your business bank account.
With this short-term bad credit business finance option, the creditworthiness of your business, while considered, is less important. What you need to get approved are solid sales.
A merchant cash advance is a bad credit business finance option for borrowers turned down elsewhere.
Other ‘Bad Credit’ Business Loans
There are other ways to receive funding, though they come at a price. “Bullet” loans and other types of private financing provide very short-term, high-interest options.
With these “hard money” business loans, a bad credit score isn’t considered as much as other fundability factors, such as revenue and collateral.