OdehaDon’t Let Bad Credit Hold You Back – Alternative Business Funding Options Explained: Starting or growing a business is challenging enough without the added stress of limited funding options due to poor credit. However, there are loan programs and lenders expressly designed to help entrepreneurs in this situation obtain the capital they need.
In this in-depth guide, we’ll cover a variety of bad credit business loan alternatives to conventional bank financing. You’ll learn about specialized lenders, loan structures, eligibility requirements and tips to strengthen applications. By applying the strategies provided, taking your company to the next level will be achievable despite past financial issues.
Why Conventional Loans May Not Work
Traditional small business loans typically require good-excellent (690+) FICO scores from business owners. Some reasons these options fall short include:
– Bankruptcy, foreclosure or other major derogatory credit events
– Delinquent accounts, high credit utilization, limited credit history
– Unproven or new businesses without extensive credit files
– Sole proprietorships with owners as the sole signers
When personal credit is fair-poor (below 670), exploring alternative programs becomes essential.
Overview of Alternative Loan Options
Fortunately, specialized financing solutions have been created with below-prime borrowers in mind. Common alternatives include:
– SBA loans (7a, 504) guaranteed up to 85% for qualifying companies
– Online marketplace loans reviewing overall business creditworthiness
– Merchant cash advances paid back via daily credit card receipts
– Equipment or inventory financing secured against purchased assets
– Peer-to-peer business lending connecting borrowers directly to investors
– Microloans under $50k administered via local economic development groups
These structures prioritize company merit over personal credit scores.
Maximize Your Business’s Appeal
Even with dings on owner credit reports, a strong business profile improves approval odds. Focus on:
– Incorporating as an LLC, S-Corp or other established entity type
– Proving consistent revenue and profitability history via financial statements
– Owning operational collateral to secure loans against equipment, property, etc.
– Providing years of business/personal tax returns validating finances
– Obtaining character references from long-time vendors/clients
Emphasizing business strengths compensates for weaker personal credit factors.
Top Lenders Willing to Work With Bad Credit
When starting the search for funding, prioritize lenders known to review cases holistically:
– OnDeck: Online marketplace loans up to $500k evaluating businesses comprehensively
– Funding Circle: SBA-preferred lending partner financing up to $500k for established companies
– Kabbage: Rapid underwriting, funding within days of application for loans $25k-$250k
– Credibly: Peer-to-peer platform pairing borrowers directly with accredited investors
– Biz2Credit: Considers customized loan terms on approvals between $5k-$500k
Reputable alternative lenders approve the majority of applications from credit-challenged entrepreneurs.
Strengthening Loan Applications
To optimize odds of funding despite minor shortcomings, sharpen applications with:
– Researching each lender’s approval rates, average terms and factors considered
– Providing latest business financials, tax returns and a 12-month business plan
– Drafting a brief, persuasive cover letter touting company strengths and vision
– Offering collateral if available to offset weaker points on personal credit reports
– Asking professionals like CPAs to double check materials for errors
– Calling promptly with any follow up requested after submitting online
Thorough preparation demonstrates serious intent to qualify for alternative financing.
Options If Denied By All Lenders
When loan efforts remain unsuccessful, explore fallback sources of capital:
– Crowdfunding sites for donations/investments in very early startups
– “Friends and family” investment in exchange for future equity shares
– Negotiating payment plan extensions with key vendors, suppliers
– Sale-leaseback agreements for surplus unused equipment or property
– Local microgrant programs through Small Business Development Centers
– Peer-to-peer lending via social media networks and entrepreneur groups
Out-of-box persistence often uncovers unique solutions where tradition methods fail.
Managing Business Credit Post-Funding
Accessing capital builds momentum, but sustained funding relies on responsible post-loan activity:
– Make scheduled payments religiously via automatic deduction if possible
– Continuously update financer on major changes to revenue, operations, etc.
– Gradually establish vendor trade lines reporting to Dun & Bradstreet
– Consider credit builder loans to build profile history over 1-2 years
– Cross-sell existing clientele into recurring revenue streams for stability
– Only apply for new business financing as expansion truly requires
Disciplined financial practices pave the way to prime business borrowing down the road.
Conclusion
With careful consideration of alternative structures, targeted applications optimized for approval, and vigilant post-funding credit cultivation – starting or growing a business remains viable despite poor personal credit. Committed entrepreneurs discover funding pathways through diligence and perseverance. Now equipped with the knowledge here, your company’s potential can take flight.
Odeha
admin