8 Ways To Get A Start Up Business Loan With Bad Credit

Getting a loan to finance your startup can be a significant obstacle. Banks and financial institutions consider financing startups to be a very high-risk transaction, so they put in place very strict entry conditions and high entry barriers to ensure applicants will be able to pay back their loans.

You may also need to take a loan against your personal finances, which can be extremely difficult to do if you have a bad credit history. Don’t lose hope, though; there are still other ways to secure financing to launch your business and accumulate enough capital to ensure your day to day operations, even with a low personal or a business credit score.

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1. Microlenders

If you can’t get a bank loan because of bad personal credit, consider using a microlender. These are non-profit finance organizations that provide short term loans, but with an amount of capital that is usually less than what you may be able to get with a bank.

However, the interest rates will often be higher than the banks. You may need to submit a detailed business plan, sales projections, and any financial statements for the application process. This process can be a long one as the revision for approving the loan will take into consideration all the information you submit.

2. Online Microlenders

If you are considering microlenders for financing your business, you could also consider online ones. Using an online broker may be your best option as this is a good one if you are short on time, have bad credit, no operating history and lack of collateral to put up against a loan.

Online brokers help give you access to unsecured business loans, which is an amount that a business will pay back over a defined period. It isn’t against any assets or collateral; however, the interest is usually a lot higher than a traditional bank, but the loan period is shorter, and approval rates are higher, and wait time for processing is very fast.

Online brokers also help you compare against different lenders to see which one would suit you. Sometimes, loan brokers may require some kind of collateral or asset security before approving a loan to a business. There are several options, such as:

3. Asset Finance

You can consider a loan against assets if you don’t have enough cash but have assets to put up as collateral against the amount you borrow.  Assets such as equipment, real estate, and vehicles can make it easy to secure finances despite the bad credit. This means, in the event, you don’t pay back your loan, these assets will be liquidated to offer up that cash in return.

4. Invoice Finance

Another way that you can get a loan is through Invoice Financing. You can borrow money against the projected or actual revenue due on your business invoices. You then pay a percentage of the invoice as fees to your loan provider.

If your business is operating at an acceptable level, the loaning entity will overlook bad credit as long as there are secured invoices. This loan will help provide you with the cash flow you need to run your day to day operations without waiting for your invoices to be settled in full before being able to take out a loan.

5. Peer to Peer

One method of managing to get a loan can be through Peer to Peer (P2P) Loans, which can be an option. Essentially, you can borrow money from individuals or investors who invest their own money through these platforms to lend to business startups or people.

If you need a loan and you have good credit, their rates are meager.  If you don’t have good credit, the prices will vary, but you can be approved for a loan regardless of credit score with a higher interest rate.  

6. Crowdfunding

Another way to get a startup business loan is to go through crowdfunding and crowdsourcing platforms. This will involve sharing your business plan, and objectives, with a community of like-minded individuals who are willing to donate money towards startups based on their business model and its perceived success.

This will require a lot of marketing on your end to be able to sell your business idea; however, you will be able to accumulate good enough funding towards financing your business that you do not need to pay back.  

7. Friends/Family Funding

Most of us have borrowed money one time or another from our friends and family. This is also true when it comes to loans to start up a business. Friends and family are usually our first source of funding in addition to bank loans and other capital sources. Depending on how close the friend or family member, you are requesting the money from is for you, keep the amount you ask for realistic.

Involve them in your business plan and explain to them in detail about your projected sales return. You can also always give them a small number of shares within your business or pay them back with an interest rate and repayment plan that you both agree on.

8. Personal Funding

If your own credit history is clear, and your credit score is high, apart from your business, you may consider financing your business from your personal sources. By securing a personal loan from the bank or applying for a credit line against your personal credit score, you can use those funds to continue financing your start-up.

However, this is considered to be a very high-risk option. You are essentially risking your credit score against the funding of your business, which may end up putting you in a bind if you are unable to keep up with the repayment conditions.

Bad credit can be a hindering obstacle to establishing your long-awaited start-up. Without the funds you need to manage your day to day operations, it will be hard to sustain your business and see it through.

Fortunately, there are many options out there that will provide you with access to loans and financing, which will give you the capital you need to grow your business concept, without the need to resort to abandoning it all together.

If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.

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