If you have a bad credit, bear in mind that it getting a loan from any financial institution is not easy. Note that the worse your credit report is, the higher your bank will perceive the risk, and the higher your interest rates will be. The majority of financial institutions will look your past performances, and if your business has not been in operation for a long time, they will ask for a detailed financial projection and a business plan. Here are some of the alternatives to get a loan if you have a bad credit.
Traditional bank loan
This alternative will perfectly work out for individuals with bad credit since traditional creditors have limitations on individuals to give their funds. However, once you take out this loan, note that your interest rates will be higher than the standard rate. On top of that, more collateral will be required to secure this loan.
A microloan is somehow similar to a traditional bank loan, but they are always offered by alternative creditors such as credit unions. The good thing about this loan is that they tend to be easier to secure for those individual with bad credit since the loan amount is not huge. For this reason, the requirements to secure this type of funding are also lower.
Merchant cash advance
Also referred to as cash advance, this alternative is applicable to those business owners with cash flow issues who require a small amount of cash. Typically, merchant cash advance has high-interest rates, indicating that you will be required to pay more in the long run than the original loan, particularly if you fail to pay. Before considering this alternative, it’s good to make sure that you are able to repay on time.
Business credit card
If you have to capability to obtain a credit card bearing your company name, do some purchases and make payments on time, you can secure some funds and begin building good business credit at the same time. Note that the credit limit, rate of interest and payment terms will always vary, and each financial institution will have suitability requirements. For that reason, this option might not work for everyone.
Revenue based loan
This kind of a loan comes with very many requirements. You need to have a credit score of more than 550, your business must produce more than a hundred thousand sales in one year, and the amount of loan must not exceed 10 percent of your total income. The good thing about it is that you can get the loan within one week.
Family and friends
If you have some people in your life willing to invest in your business, sourcing some funds from colleagues and family members are sometimes a perfect alternative. Certainly, for many small business owners who are just starting off and do not have sufficient funds, this is not a good option. Perhaps the amount they need is way too high, or they simply don’t have many friends. It is likely that your friends and family will think it’s very risky for them as well.