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When Your Business Needs a Life Raft: Loans for Small Business Owners with Bad Credit

When Your Business Needs a Life Raft: Loans for Small Business Owners with Bad Credit

Undoubtedly, you’ve already put a lot of effort into your business, from marketing to developing an awesome product. But, despite all of the work you’ve put in, you need money in order for your business to truly flourish. If you have good credit, this is usually easy, as a bank would trust you from the get-go. In contrast, loans for small business owners with bad credit is less clear cut.

But just because a business has bad credit does not mean it is a bad company or doesn’t deserve money. Unfortunately, many small businesses felt the impact of the economic crisis a few years ago. They are still working to find long-term solutions with loans for small business owners with bad credit.

If you do a Google search for “loans for small business owners with bad credit,” a lot of hits will come up (probably including this one). However, it is incredibly important to sort out the reputable information and companies from shady information and companies. So, for starters, here are tips to locate the best loans for small business owners with bad credit.

Think About What You Actually Need and Can Repay

When you’re in a pinch, it’s easy to know that you need more money in order to make your business function optimally. Though, that insight only scratches the surface. In order to effectively learn about your options, you need to know what you’re looking for. Of course, any business would want a million dollars—but how can you zero in on the minimum amount of money that is required to jumpstart your business?

This can take a fair amount of thought and consideration. Do you need to invest in marketing/social media and getting your product out there? Do you need to upgrade technology in your office? Or maybe something else is your top priority. Review your budgets and research what other similar organizations have done in terms of loans for small business owners with bad credit.

Similarly, another relevant consideration is the amount of money you can afford to pay on a regular basis. Figure out what your limits are, and where you’re flexible.

Revisit or Create A Business Plan

A well thought out and researched business plan is an important component for success. It gives you a strong idea of where your business is going. This is important to potential lenders for loans for small business owners with bad credit. They want to know you have the eye on the ball, and have a plan to make incremental revenue a reality.

Get 4-5 Quotes

Quotes will help you get a clearer picture of the types of interest rates and payment plans you can expect. When you talk about your options with a company, don’t be afraid to ask questions. It involves you and your money, so it’s important to ask proactive questions. There have been too many cases of loans for small business owners with bad credit overwhelming borrowers and making things worse instead of better.

Don’t Panic

Money troubles can lead to panic and a mad scramble. Do your best to avoid this. You’ll think better and be more level headed if you simply take this process one step at a time. It’s impossible for loans for small business owners with bad credit to appear instantly. Like running your business, it takes careful thought and hard work.

Go With Your Gut

Believe it or not, your gut reaction or intuition is super powerful. If something feels off—even if you can’t necessarily put a finger on it—trust your gut a la Olivia Pope in Scandal. It’s one of the savviest ways to get safe loans for small business owners with bad credit.

Ask for Feedback

Getting a rejection is never easy; it can create a negative and frustrating feeling. Though, like all rejection, it doesn’t reflect the big picture. It doesn’t mean that your business isn’t worth it or won’t succeed. The decision simply reflects factors at play at that time. It never hurts to ask for feedback. It’s possible the reasoning behind the decision isn’t obvious, and you could learn something valuable simply by asking.

The Types of Loans for Small Business Owners with Bad Credit

When it comes to loans for small business owners with bad credit, you have a larger variety of options than you may think.

Bank Loan

When people think of loans, banks are usually the first thing to pop into peoples’ brains. But, as we mentioned before (and how you’ve probably experienced), banks have a tendency to turn down small business owners with bad credit. In fact, according to a 2014 report, 63% of business owners try to work with banks. Though, only a mere 27% of the 63% were actually able to secure a loan from a bank.

Even though that statistic can be discouraging, there are some things you can do to increase your chances of hearing a positive response from a bank. If it isn’t already, consider making your business official by registering it (i.e. as an LLC). That shows you take your business seriously, so banks would be more likely to see you in the same light.Loans for small business owners with bad credit.

Additionally, know that one “no” doesn’t mean “never.” After all, this probably won’t be your first loan—or your last. Now, you’re in an excellent position to explore your options and enhance your future options by developing smart repayment habits.

Revenue-Based Loans

You put money from your business into a bank account. Did you know you could use this habit to help you get a loan? Revenue attractive because bad credit is OK and you don’t have to provide a source of collateral. Plus, revenue-based loans for small business owners with bad credit can be given in as little as 7 days. In sum, amounts tend to total around 10% of annual gross deposits.

SBA Loans

The US Small Business Administration (SBA) offers some appealing options. As a governmental organization, it serves as an intermediary and a guarantee that a loan will be paid, regardless of a credit score. One of their major efforts is a 7(a) Loan, which can be used to help operate and expand a business.

Microloans

Microloans can serve as excellent loans for small business owners with bad credit. They aren’t just for businesses abroad—many businesses in the United States have received microloans. Interest rates for microloans can vary dramatically, so shopping around is a smart choice.

A Car Title Loan or An Installment Loan

A car title loan uses a borrower’s title as collateral. Installment loans don’t require collateral. Both are options as loans for small business owners with bad credit. They are phenomenal because they are easy and fast to get, and a borrower’s needs are given top priority.

Consider Other Attractive Options

Unfortunately, the interest rates tend to be higher for loans for small business owners with bad credit. The simple reason is, lenders don’t have a way to guarantee a borrower will follow through as promised. In addition to getting quotes for loans for small business owners with bad credit, think about the following options.

Ask Your Friends and Family

Banks tend to use a rigid algorithm (usually involving credit) to determine if someone can get a loan. The process for loans for small business owners with bad credit tends to overlook soft factors. Your friends and family understand the soft factors, like how passionate you are about your business, how persistent you are, and how you’re trustworthy, even if it takes you a bit more time. This is a strong trend—according to Entrepreneur.com, more than 50% of business owners have received money from their loved ones. If it’s feasible, loans for small business owners with bad credit don’t have to come with an incredibly high interest rate.

Get a Credit Card for Your Business

If you personally aren’t eligible for a business credit card, reach out to the partners you have in your business who have good credit. With a co-signed business credit card, it’s possible to cover expenses. Though, be careful with what you charge to a credit card. You don’t want to dig yourself a bigger hole (or contribute to your partner’s credit score taking a hit), so don’t allow it to go into default.Loans for small business owners with bad credit.

Explore Your Grant Options

Grants aren’t just for nonprofits. The SBA has a great search tool for finding grants for small businesses. You can search, and see what you qualify for. Though, the grants tend to be specific in nature, and can’t be used to grow or expand a business. Many grants can be applied to scientific research and development. There are a handful of other grants floating around, but it’s a good idea to put your discerning cap on when doing the research.

Crowdfunding

You’ve probably heard about many crowdfunding success stories, from the Veronica Mars movie to the Coolest Cooler. Since the 3-digit number isn’t involved, crowdfunding can replace loans for small business owners with bad credit. While crowdfunding can help raise money and awareness about a company in a short amount of time, nothing is guaranteed. A good amount of excellent ideas have gone unfunded. So, if you decide to try crowdfunding, do your homework and have realistic expectations.

Savvy Tips to Help Improve Your Credit Score

Any way you slice it, a good credit score never hurts you. Though, right now, you can’t change what has happened in the past; you can just make different choices in the future. For the sake of easing stress, implement these tips, whether or not loans for small business owners with bad credit are in your future.

  • Organize all of your bills, and make a checklist for each one as it’s paid.
  • Have 2-3 people review bills and other financial documents to keep everyone accountable.
  • If you anticipate having difficulty making a payment, reach out and see if the lender or vendor can be flexible.
  • Know that it’s OK if you miss a bill here and there. Mistakes can happen, as long as you don’t make it a habit.
  • On a yearly basis, get a free credit report from one of the three bureaus (Equifax, TransUnion, and Experian).
  • Don’t just look at the credit score. Check to make sure everything on the report is correct, and report any issues as soon as possible.
  • Set goals for your financial future.
  • Motivate everyone who is part of your business to stay committed to developing good credit. Make it a team effort.
  • Put bills that you can confidently repay (i.e. utility and transportation costs) in the name of your company.
  • Network with similar businesses, and learn from each other.

Improving your credit score doesn’t happen by snapping your fingers. (But let’s be real: wouldn’t it be really awesome if that happened?). It takes a significant amount of effort over a period of several years. There will probably be some bumps in the road to credit recovery, but you’ll thank yourself in the future when you’re able to expand your business with ease. You can be a small business owner with good credit.

Smart Lending Equals a Solid Business

We 100% agree with the fact that this is a lot of information to digest about loans for small business owners with bad credit. Take a breath. You don’t have to sort through everything at this very second.

Ultimately, if you’re reading this article for advice, you have a big decision ahead of you. Be careful and read the fine print, and weigh your options with a mind tuned to the needs of your business. With the needs of your business as your North Star, you’re undoubtedly set up for success.

Have any tips about loans for small business owners with bad credit? Or have an easy, tried and tested way to improve credit scores? Tell us about it in the comments.

Scott Carver
Scott Carver
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