Keeping a business afloat in these dire times is hard. There are already many factors to sustaining a profitable company, but having bad credit is a problem that hits hard.
You might think it’s near impossible to find a financing option when you’re head in under the bad credit strain. It’s hard to get approved for assistance and loans, but bad credit shouldn’t be the end of the line for you. The good news is that there are lenders who are willing to risk it for you.
To make the process easier, here is a list of the best business loan alternatives for people with bad credit.
Best Loans for Businesses with Bad Credit
Merchant Cash Advance
Getting a merchant cash advance (MCA) instead of the traditional loan might be the best alternative for your business. If you are in need of quick financing and if your business regularly and frequently deals with credit card transactions, then an MCA is a wise choice.
An MCA is a method of financing where the borrower (you) borrows the needed amount, which will then be paid through deductions from business transactions. These transactions must be done through credit cards. The business profits of a month will be computed against a previously-discussed percentage (holdback), which is where the deduction comes from. This ensures that your business will not be heavily impacted by each deduction, as it is dependent on the monthly sale.
The deductions will continue until the amount is fully paid.
Invoice financing is a way for businesses to get financing using outstanding invoices from the business’ clients and customers. This way of acquiring a loan is recommended for businesses that want to move at a quicker pace, despite their clients’ inability to immediately pay.
Submitting the invoices as part of the application is the lender’s way of ensuring that your company is profitable and able to pay back the borrowed amount. It is especially proof that your bad credit does not reflect your ability to pay.
The control over the invoices remains with the business owner, contrary to invoice factoring.
Although similar to invoice financing, the difference between the two is where the control lies. With invoice factoring, the invoice becomes the property of the third party (factor).
Invoice factoring is where the business sells its discounted invoices to the factor. The same principle in invoice financing applies here. The invoices serve as proof of future income, as well as a guarantee that the debt is paid.
As with other types of financing methods, invoice factoring comes with pros and cons. The most significant negative is that you might still be responsible for unpaid invoices, even if you’ve handed the invoices over to the lender. Invoice factoring also heavily relies on your customers’ payment history. The more unreliable your customer base is, the less likely you’ll get approved for factoring.
Microloans are loans that come in small amounts. Microlenders are less likely to be strict with their vetting process due to there being less money at stake, compared to other lenders. Microlenders are typically non-profit organizations that aim to help people get on their feet. They usually have a lower credit requirement, but these organizations do have requirements specific to them. This makes microloans more achievable for business owners with bad credit.
Because of the small amount, microloans are not realistic for big business ventures. It is better for small businesses, or for established businesses that need financial help.
If you have bad credit, your best bet is to research different microlenders and see which one fits your needs best.
Just from the name, this financing method is specifically for business equipment.
Obtaining a Bad Credit Business loan from most lenders for equipment upgrades or replacements can be an absolute pain for business owners with bad credit. It is the unfortunate reality that comes with a less-than-average score. However, there are still lenders who are willing to compromise on this.
Equipment financing is used to purchase equipment and machinery that are expected to aid in furthering the company. The equipment bought can be used or new, depending on the deal struck between the two parties. The lender’s assurance in this arrangement is the failure to repay the debt equals seizure of the equipment involved.
The upside is the business owner will not have to use money out of their own pocket. The downside is that the company will be equipment-less if they fail to uphold their end of the deal. But if you are willing to take the risk, or if you are confident in your ability to pay, then using this funding method is a good way to get the money you need.
Worst comes to worst, you can always offer collateral in exchange for a loan. Although not ideal, this is still an easy way to get approved for loans, as it gives the lender a guarantee that they will not lose out on the arrangement.
Collaterals can be anything from company property to personal property. Be wary of doing this though, because failure to make payments will result in losing these collaterals. Make sure you have a separate fund specifically dedicated to paying this to avoid forfeiting.
Reach out to Clear Skies Capital today
Here at Clear Skies Capital, we understand the struggle of business owners. Let us help you realize your goals with our team of experts to guide you along the way. Talk to us!