In terms of financing, your credit score is very important. Having a high credit score means you find it easier to acquire credit from various funding sources, while a low score means you won’t be able to get funding from any of them.
However, having a bad credit score is sometimes unavoidable. Luckily, there are some ways to get around this like funding your business from other alternatives. This will actually help bring your credit score to a better light and pave your way to the next level.
Apart from traditional lenders, here are the alternative methods on how to get small business funding with bad credit:
P2P lending or peer-to-peer financing
This type of small business funding is a great way to source the funding you need. Most P2P lending firms overlook credit scores, so, if it is low or non-existent, you’ll still be able to borrow money. Most of these peer-to-peer lending institutions operate online, with the application and approval process taking place on the Internet.
Nevertheless, most P2P financing have terms that are customized based on your credit situation, but overall, it is an excellent and safe way to borrow money.
These days, there are lots of online lenders that grant microloans to small business owners who need fast cash. Most of them will allow you to borrow money even if you have a poor credit.While these loans typically come in smaller loan amounts, you may have to pay interest rates that are higher than the norm.
With microloans, interest rates range from 12% to 20%, but some lenders even go a little higher. Expect to pay larger monthly payments since the interest rates are higher. Nevertheless, microloans are a great way to fund your business and repair your credit score. You can check this listof potential lenders for small business loans.
As long as the monthly payments get paid, your microloans will impact your credit score in a positive way. However, you must consider the high interest rates before borrowing money and see if getting a loan from them won’t do you any harm.
Get into a partnership
Businesses with a potential for growth will easily find investors or partners with good credit scores and will allow you to get business funding. When getting into a partnership, it is a must to agree on the ownership percentage and responsibilities of each other as business partners. However, like any other loans, partnering with someone in order to secure a business loan poses a number of risks. For instance, you will be entrusting a portion of your rights of business ownership to your partner. Hence, you must choose your business partner wisely.
This new funding concept is becoming a trend with small businesses. This involves a number of people funding the business. Necessary funds are often raised through online campaigns promising the “investors” to receive ROI plus profits in a certain period of time. While it is a little risky for both the business owner and the funding crowd, this is one of the best ways to get funds even with bad credit.
While we do not really recommend getting funds from your credit cards, you may still want to consider it if there is no other option. Credit cards allow you to purchase items that you require for your business or can even allow you to get cash advances. Nevertheless, interest rates for credit card loans are higher than a typical loan. Plus, paying only the minimum monthly due might mean you’ll be paying the balance forever. Hence, using your credit cards must be your last resort.
While it is still best to get small business funding by improving your credit score, this is not always possible, Nevertheless, you must not sulk in the corner and wait for a money rain just because you have a bad credit score. You can always do something about it.
So, you do not have the time and means to improve your credit score? Try the options listed above. The tips we mentioned can definitely help with your business funding, which will eventually help improve your credit score. However, before considering which option is ideal for you, consider first the capital cost, interest rate, APR, and other factors that may have further impact to your credit score.