After conducting a research and discovering the perfect business idea based on a niche that shows great potential, you feel you are ready to get started. The problem is you lack the capital to execute your plan, and neither do you have any savings to rely on nor potential investors to act as your stepping stone. And to make it worse, your credit is in bad shape that no bank or online lender would consider offering you a loan.
New businesses are prone to facing bigger obstacles
Getting a small business loan is a tight spot for entrepreneurs with a bad credit (score ranging from 300 to 629) but for new business, the experience is a total nightmare. Most banks begin by evaluating any would-be borrowers using a scoring model that considers the credit score the most important factor. Therefore with a bad credit, you reduce your chances of scoring highly on the model, more so if your company is a startup.
While most online lenders are eager to offer small business loans to merchants with bad credit, these loans are only available for small companies with an established track record. In most cases, startups less than a year old will not qualify.
Go for nonprofits and microlenders
For startups, nonprofit organizations and microlenders may be the best source of funds since they normally have a different craving for risky businesses than traditional banks.
In fact, you could win a rather good deal despite the expensive funding that comes with Bad credit business loans. Most nonprofits and microlenders are geared towards assisting minority entrepreneurs, women, or any business-minded fellows from low-income communities.
Even with a high-risk credit, no nonprofit or microlenders would offer a loan as high as 20%, it can only go as high as 9 to 10%
How to better your chances
To make the grade, create a solid business plan and most importantly, show signs that you’re making an effort to fix your bad credit and that you’re strong-minded to have your finances set in order.
- Take even the smallest steps to fix your credit
A bad credit may be contributed to by a number of factors. Maybe you are struggling with a huge credit card debt which you have failed to settle on time. In this case, the best thing to do is to set your finances right. If you’re lagging behind, nobody will be willing to offer you a loan. The lender wants to see you working hard to meet your obligation.
- Show how serious you are about it
For example, negotiate a plan to clear a credit card bill, or to settle your collections account, and then prove to the lender you can stick to that plan. This way you can get on a payment plan using your credit card and bear out that you can make payments on time for several months. By doing so, you can get to convince a micro lender into supporting your company. They will be ready to work with you if you can start off by making regular payments for a couple of months, as this shows that you had your budget balanced in a way.
Alternatively, with microlenders like First American Merchant, you can enjoy no credit check financing. These are loans programs that you don’t need a good credit score, extensive paperwork, high interest rates, or long-term contracts to access.