This article was provided to AvvoStories by BadCredit.org
The lifeblood of any business is capital, and access to proper funding can make all the difference in its success. Gaining access to that capital, however, can be a challenge for small business owners; only about 27% of small business loan applications get approved, according to the Small Business Association. It becomes especially difficult when your credit rating is less than stellar. But there are options available to find funding for your small business. Here are six ways the credit-challenged can acquire loans and resources:
Try a Credit Union or Small Bank
Larger banking institutions are more likely to reject a small business loan application due to credit concerns—or they may go the other way, and refuse to lend less than a certain minimum amount. In either case, local credit unions or small banks may be a better option, as they are known to have less stringent qualifications for business lending.
Contrary to what you may think, credit union membership is usually no longer restricted to specific organizations, though those credit unions still exist. Nowadays, many credit unions instead base their memberships on geographic region and accept anyone who lives in the area.
Use a Personal Loan
If you are repeatedly rejected for a business loan based on a low credit rating, your next best option may be to take out a personal loan, which exist for a variety of credit score levels, including for those with bad credit. Personal loan rates will likely vary inversely with your credit score; the lower your score, the higher your rate. Don’t assume you can’t qualify for a better rate somewhere else if the rates in your first offer or two are too high.
Be aware that you will probably see a much smaller line of credit with your personal loan than with a business loan. For bad credit borrowers, personal loan amounts will generally max out at around $35,000, and will largely depend on your personal income and ability to repay the loan.
Apply for a Business Credit Card
If you need a smaller amount of funding, one good route may be to take out a business credit card. While the best business credit cards generally require at least a fair credit score (650+), they are still much easier to qualify for than a small business loan. They also tend to come with additional perks, like signup bonuses and rewards points. Your maximum limit will probably be lower than a business loan would supply, but will still be based on the income of your business, and could range into the tens of thousands for well-qualified applicants.
Know, however, that with a credit card the interest rate on your debt will likely be significantly higher than that of a loan. Credit cards should not be used to finance a balance you intend to carry for a significant amount of time.
For a small, interest-free loan, you may consider using your personal credit to obtain an introductory 0% on purchases credit card. These cards will have credit requirements similar to a business card, but while the credit line will be much less—likely a few thousand—you can carry the balance for any business expense interest-free for that entire introductory period.
Find Investors Among Family and Friends
If you’ve exhausted your financial resources, you may need to look a little closer to home. Many small businesses have been financed by charitable, or just investment-minded, friends or family members.
The method you use to obtain money from friends and family will depend on the type of business you own; corporations will have different rules than an LLC, and both will differ from a sole proprietorship. You may want to go through a business attorney to smooth the process.
Find Investors Online
Between crowdfunding, startup accelerators, and angel investing websites, there are hundreds of resources for finding unconventional sources of business capital. If you know you have a great product that speaks for itself, this is the venue to let it start talking.
New resources for nontraditional funding are popping up all the time, but there are more than a few established companies serving various small business categories. For instance, OnDeck.com offers loans to small businesses, and Kiva.org helps people in need find funding to start a business or get an education.
You can even find non-loan funding online, in the form of fundraising platforms such as GoFundMe.com, where charities and other nonprofits can raise money for a cause, or the popular Kickstarter.com, which helps artists and other creatives fund new projects. The caveat with most online fundraising programs are the minimum funding requirements. You’ll often need to raise a certain amount to actually receive any of the funds you raise.
Repair and Improve Your Credit
When you’re all out of funding options for your small business, it may be time to go back to the drawing board—or, in this case, the credit report.
If you haven’t yet, pull a report from each major credit bureau (Experian, Equifax, and TransUnion). Every negative mark or account—like a missed credit card payment or defaulted student loan—is pulling down your score. Either on your own, or with the help of a good credit repair company, you should address any errors, outdated information, or fraudulent items (in the case of identity theft, consult an attorney).
Making an effort to fix the underlying problem of your bad credit will not only make it much easier to qualify for new credit, but it will likely increase the quality of that credit, in terms of the loan amount and interest rate. Be aware that improving your credit is not an overnight process, and can take months, or even years, depending on your situation. Financial discipline and responsible spending are the only guaranteed ways to improve your credit score, helping you get the funding your business deserves.
