It is prevalent for small business owners to face lots of issues while applying for a loan with a low credit score. Most of these entrepreneurs feel frustrated when they think that there is no way to get a loan. However, the good news for them is that bad credit loans are available for these small business owners. Banks and other conventional financial institutes may reject your application after finding the bad credit report.
The minimum credit score for a business loan may vary by lender. Now, how has FICO defined bad credit? The score, ranging between 300 and 629, indicates the lower credit status. The lenders think that the borrowers, with lower credit scores, may not be able to pay back the loan on time. Still, you have some business financing options with your bad credit status.
The entrepreneurs, looking for short-term loans for their small business, can choose microloans. The loan amount has to be within $50,000 to get easier approval. The SBA agency in the USA offers these microloans for purchasing inventory and different other purposes. You cannot use the microloans for buying real estate.
Merchant Cash Advance
You may need instant cash for your small business. In this case, MCA is the best financing scheme, and the lender checks out your everyday sales to calculate the loan amount. You may transfer the repayment amount from a bank account. Another option for you is to make the repayment from your debit and credit card sales.
Manufacturers and other types of entrepreneurs may think of buying new equipment. For them, bad credit equipment financing is the right choice. You have to choose your equipment as your collateral. Your lender will not focus on your credit score, and in case of your failure, he will sell off your equipment (collateral). However, some lenders may ask you to make down payment for this loan.
It is another funding option, converting your invoices into cash, needed for small business. Invoice financing is the bad-credit business loan without any need for collateral. The invoices and your customers’ creditworthiness would minimize the risks of your lenders.
The loan amount, provided by the lender, is more than 75% of the invoices to be financed. It is easy to get this invoicing loan, as the customers of your company will make direct payments to the lenders.
Business line of credit
It acts as your business credit card, and you need to repay the amount, maintaining a schedule. For the unsecured business line of credit, you do not need to secure a very high credit score to get benefit from this financing option. You can make a weekly payment to cover the repayment amount in 36 months.
Now, you may choose any of these business loans when you have a bad credit score. You have to read the details of every type of business loan to make the right choice. The reliable lenders will also give you the relevant information on the loan schemes.