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Bad Credit Shouldn't Keep You from Starting a Business

Having an amazing business idea for a small company is a promising market opportunity. There shouldn’t be anything to stop you from getting it all started and filling a gap in the market. However, there is something.

By Isla WrightPublished 5 years ago 4 min read
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Money. Money may be the thing that is standing in your way. Not having any, or enough, will turn getting your business off the ground into a problem. Using credit is an option, but only if you have a good credit score—which isn't the case. So, what can you do? Let's find out. Bad credit shouldn't keep you away from starting a business.

Offering security for a loan

Many lenders will need some kind of security before they offer finances to a business, and there are a number of creative ways for you to offer them some. In other words, there are multiple, tailored solutions for offering security that can fit with your business model:

  • Turnover loan—In the case where the credit score is somewhat strong and a business turnover looks healthy and sustainable, certain business loans can be offered, despite the bad credit.
  • Invoice finance—Invoice discounting or factoring are amazing ways of using a sales ledger in exchange for ready-access to income from unpaid invoices. Lenders often ignore financial or poor credit history when as a business is currently efficient.
  • Asset finance—When a company is asset-rich but money-poor, a lender might consider taking other forms of security like inventory, equipment, or vehicles in return for more competitive debt rates.

Social lending websites

When you are looking for unsecured, working capital, you could try using various social lending websites that have proliferated the Internet in recent years. Basically, social lending platforms are places where members borrow and lend to each other.

Receiving access to capital from these sources tends to be simpler here since you get to tell your story directly to funders. Moreover, the rate of this kind of loan is typically lower than traditional bank lending. Sometimes considered as personal loans, the funds you receive here can be utilized for any purpose including starting and running a business.

Unsecured business loans

In some situations, a business doesn’t have any assets available, but you can still find an unsecured loan, even if you have bad credit affecting your business or you personally. Although they sometimes have higher interest rates, this is usually mitigated by the lower duration of the loan.

Online lenders are generally willing to offer no security business loans, ranging from $5,000 to $300,000. As the name implies, the loan isn’t secured against any stocks or assets. You will agree to pay back this amount over a set period of time.

Alternatively, you can take a business cash advance. With this type of loan, the money you get from sales is used to pay back the advanced money that was loaned to you. Although you receive an instant boost of cash, the percentage of future sales will have to be paid back on all transactions until the agreed amount is paid back.

Find microlenders and nonprofits

When you have bad credit and want to find a startup loan, sometimes your best bet is with alternative institutions—which typically means nonprofits groups and microlenders. For instance, there are lenders that focus on small companies in low-income communities or those owned by minorities and women.

With this kind of lenders, you can get a fairly good deal. Bad credit business loans usually mean more costly financing. But this isn’t necessarily the case with microlenders and nonprofits that tend to help minority or women entrepreneurs, or those from economically disadvantaged and low-income communities.

Other notable alternatives

There are even more options for startup funding available to you if you have a bad credit score. For example, you can take trade finance. Trade finance is taking out a very short-term loan, typically between 15-30 days, that can answer your immediate cash problems but can also improve your payment and borrowing record—as long as you repay it on time.

A business credit card is another great option. You just have to be careful with it. They can also improve your credit score history when you pay them back on time.

Conclusion

Although most lenders tend to ignore potential borrowers through credit profiling—leaving many startup owners in limbo—the options listed above are designed to fill the lending gap that is crippling the business world. They are geared toward helping all business owners, regardless of past credit mishaps.

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About the Creator

Isla Wright

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