When it comes to getting the money to make your entrepreneurial dreams come true, there are as many ways to get your business funded as there are ideas for your business. However, if you’re planning on starting a business with a less-than-ideal credit score, you’re likely to face more than a few obstacles with traditional lenders when it comes to getting small business loans with bad credit.
These days, the average cost of starting a business is $30,000, according to the U.S. Small Business Administration. Chances are you probably don’t have that type of money sitting around, and very few people can score that type of cash from a traditional lender alone.
However, there’s no need to panic. Plenty of folks have stood in your shoes and gotten small business loans for bad credit by simply using routes that didn’t involve banks or credit unions. With some skill, vigilance, and a little help from the internet, just about anyone can make it happen. Here are six strategies to get business loans with bad credit.
#1 Use Crowdfunding to Get Small Business Loans with Bad Credit
Though some entrepreneurs may roll their eyes at the prospect of what they consider virtual panhandling, many crowdfunding sites have served as incubators for some of the most innovative startups and successful new businesses in recent years. The Pebble wristband, Oculus Rift, and even the Veronica Mars movie were all projects made possible by crowdfunding sites. These sites help level the playing field for would-be businessmen and women who need business loans with bad credit, because if you have bad credit or no credit at all, you can still begin your business venture on this platform and spread the word about your project for free.
The best part about it is you can put your pitch, your product, and your business plan all in one place for your family, friends, and investors to see. However, there is one major caveat: many sites charge you a monthly fee to maintain your monthly fundraising strategy.
Additionally, there certain constraints on the types of projects sites like Fundable.com will accept, which can limit the types of projects they’re willing to help get funded. So if you’re looking to start your own brewery or marketing company, you may be better off investigating another funding option.
It goes without saying that without at least a few years of good credit in your business’s name under your belt, many traditional lenders won’t be willing to risk lending you money. Additionally, you may not be connected to anyone with the financial means to give you the cash you need to get your operation off the ground. So what are your options if you need a small business loan with bad credit?
These types of loans are usually for small businesses whose monetary start-up needs fall around $50,000 or less. However, there are strict limits on what many microloans can be used for. While typical microloans can be used to cover the cost of inventory, working capital, furniture, or equipment, you may not be able to use them for the cost of marketing your business or other expenses related to getting your project up and running.
Additionally, you must submit a detailed business plan and continue answering to your lenders about your credit score once your business get started. They want to know how you plan on repaying your loan, which can be a bit exhausting on top of trying to get your business rolling. So until your last payment is officially processed, you are still in the shadow of your funders.
#3 Merchant Cash Advance Small Business Loans
More and more, borrowers with less-than-ideal credit histories are turning to the emerging solution known as merchant cash advances to get safe, affordable small business loans with bad credit. Though it’s an industry that’s still budding, many business owners with less-than-ideal credit have gotten the money they need to get their start using this method of funding. It may not be a strategy everyone is familiar with, however there are some surprising liberties merchant cash advances give to entrepreneurial borrowers.
The beauty of this type of service is that would-be business owners can get the cash they need without having to have an ultra-specified business plan. So even if you’re still in the process of working out the kinks, you can get a substantial loan in a matter of hours. Online services like ApprovedMF.com link potential entrepreneurs with loans of up to $50,000 that can be tailored to fit their businesses’ specific needs.
These types of loans are given under the premise that the lender will receive a percentage of future credit or debit card sales. With these types of loans, the repayment schedule is shorter than traditional loans like those from a bank or credit union.
There are no balloon payments, which gives you as a business owner a little breathing room when it comes to repaying your loan. The system is convenient because the repayment is deducted directly from your business’s transactions, so you don’t have to worry about crunching numbers at the end of the month – they’re set up and taken out automatically in an amount you agree upon with your lender ahead of time.
#4 Apply for a Grant if You’re a Small Business with Bad Credit
Though they’re not exactly handed out to just anyone who asks for them, grants are a debt-free way of funding certain types of businesses, like those in the health care, technology, or retail sectors. Grants are usually given by corporations, foundations, and other organizations.
While grants a way to get business loans with bad credit, many foundations are flooded with more grant requests than they can fill, and most give priority to businesses or nonprofits in lower-income areas.
Consequently, you have to write up a stellar grant proposal that outlines your business plan and goals, and send it to several foundations…and then wait for a response. For this very reason, many non-profit and not-for-profit organizations have full-time employees who dedicate their time solely to writing grant proposals – because it really is a full-time job.
If time is of the essence in your particular situation, or you have little experience writing proposals or applying for grants, a grant may not be the best way to go about funding your venture.
#5 Apply for a Small Business Administration (SBA) Loan
The Small Business Administration (SBA) is an independent agency of the federal government that provides potential entrepreneurs with a listing of lenders who participate in several different loan programs, so you can choose lender who best fits your needs and go from there.
However, being an independent agency of the federal government, there is a bit of a laundry list of requirements business owners must meet and some thick red tape to cut through before you can be considered or officially approved for a loan. Also, like many crowdfunding sites, the SBA has strict requirements on what types of businesses it will and will not fund.
The process in its entirety may take a good bit of time, so if you’re looking to start your business sooner rather than later, it may behoove you to investigate other options.
#6 Ask family members for a Small Business Loan with Bad Credit
You may have a particularly well-off friend or relative who has the means to give you the cash boost you need. Asking people you know personally is one of the most popular methods of getting small business loans with bad credit, however it is also one of the most precarious.
Though your friends and family likely won’t take your credit score into account when you ask them for the money to make your business work, there could easily be social stipulations that take the place of a credit check, not to mention potential conflicts of interests. But if you’re dead-set on making your business dreams a reality and are fully confident in your idea, you shouldn’t let these things deter you.
Scholar and organizational consultant Warren Bennis once said “Trust is the lubrication that makes it possible for businesses to work.” This is never truer than when you approach someone you know personally for money. If your business tanks before it gets off the ground, you run the risk of disappointing your donor, putting strain on a personal relationship or two, or enduring awkward family reunions for the rest of your life.
Remember to Enter the Process with a Plan
Whenever you ask for money, it’s always a good idea to have a business plan written up – not just so your funders can understand, but so you yourself have a clear picture of where you’re going, where you want to end up, and how you plan on getting there. Though there may be bumps along the way, your plan can at least serve as a basic outline of how to get your operations functioning.
Making your business dreams a reality – and getting a small business loan with bad credit – may take some elbow grease, however with a little financial help, a plan, and some good old-fashioned moxie, you can start the firm, organization, or corporation you’ve always dreamed of.