Maybe you own a business. Now want some cash flow to maintain the sustainability of your company. In that scenario, business finance is the perfect option for you. You can opt for unsecured business loans or business loans on property in this situation. But, generally, business finance lenders set some rules and eligibility criteria for the borrowers. So, if you want to borrow business finance, you need to fulfill those requirements. One such criterion is credit history.
Probably, all traditional banks want the borrowers to feature at least a credit score of 500 to be approved for the loan. Now, maybe you have some other active finances and debts that you cannot repay on time. So, in that case, this can inevitably influence your credit history and reduces your credit score. Now, not all private business lenders rely on credit history when assessing a business loan application, you can get business finances with bad credit! Read on to know the types.
Several types of bad credit business finances
Company owners or business owners with poor credit scores often face difficulties while getting business finance. Be it a bank or other traditional financial institutions- most lenders require the borrowers to feature a minimum credit score of 500-640.
But, thankfully we have found some great financing options that can provide the lump sum amount to borrowers with poor credit. If you want to know more about these loan options, go through the following points.
Invoice or Factoring Finance
Most people know this type of finance as accounts receivable financing. In the case of such loans, the borrowers need to sell their overdue invoices to the factoring businesses. Now, the factoring companies pay the borrowers approximately 85% of the outstanding invoice.
Then they collect from the consumers and return the remaining invoice to the borrowers. But, in that scenario, the factoring companies deduct their fee. Like any other bad credit business loan, Invoice finance also features multiple advantages and disadvantages.
Since this financing option does not require a credit check and prevents the slow-paying clients from affecting your company, it can be a good choice for people with bad credit. But, if you want to choose this financing option, your company needs to have invoices.
Maybe you want to grow your business by introducing new technologies and updated equipment to your company. Consistent cash flow is vital to maintaining the sustainability of a business. But, updated technology and equipment are also significant to keep the demand and supply ratio in order.
That is why many private lenders offer equipment financing to borrowers with bad credit histories. Also, the loan lets you get new equipment without paying in advance. One advantage is, you can even use the asset as collateral while applying for secured business finance with a poor credit score.
But, equipment financing can have some risks like any other business finance. In case of any default, the lenders have full rights to take back the respective equipment for which you took the loan.
Business Credit Card
If your credit history is not impressive and you want immediate access to a lump sum amount, you can go for a business credit card. Maybe you have a personal credit card, but this one is different from the first one.
Financial institutions offer business credit cards to cover the expenditures and provide a cash flow when needed. Also, you can use business credit cards only for trading purposes, not for personal purposes.
However, it is challenging for a person with poor credit to get a business credit card. But, the silver lining is that such credit cards are available for all kinds of businesses. A secured business credit card always helps the company to build business credit.
Also, you do not need to wait long to get approvals, and the cards will assist you by paying the due bills on time. But, business credit cards generally feature a high-interest rate.
Short-Term Business Finance
Often small company or business owners ask about some financing options. So, we recommend business owners with poor credit history go for secured short-term loans. Generally, long-term trade finances have extended loan periods and also rely on credit score.
The borrowers need to repay the term loan over 1 – 12 months, some private lenders offer small amounts to business owners with bad credit histories. Such finances often feature a loan term of 1- 6 months.
Secured short term business loans can have all the fees and interest capitalised . So, you receive a net loan amount and repay the loan with fees and interest after the loan term ends. Although you will find various lenders online offering such finances, short-term loans come with high-interest rates.
Even if you have bad credit there are always funding options available for your business, you just need to do the research and find one that does not rely on credit score. Most private business short term lenders are like this and only use one that is trustworthy and reputable.