Traditional banks are too conservative and are always trying to minimize their risk.
They are the last place a small business owner with troubled credit will get the financing they need.
There have been many small business lenders that have popped up over the last several years that have made it easier to get a small business loan for those with bad credit.
Many of these lenders are focused on particular specialized type of lending. If you have bad credit and fit there mold you will be able to get the funds you need.
If you have issues with your credit do not let that stop you from getting funding.
Below are five types of loans you can get if you are a business owner with low credit.
Merchant Cash Advance (MCA)
A Merchant Cash Advance is not a loan. It is an advance based on your future credit card sales. A lender will give you upfront a lump sum of money for a specified percentage of your future credit card sales.
This type of loan does not require you to have very good credit. The advance amount can be funded to you within 24 to 72 hours. The payback term is usually between three and 12 months.
Your payments are automatically withdrawn on a daily basis. The amount withdrawn per day can fluctuate based off your daily credit card sales.
ACH Advance/Revenue Based Financing
This type of funding is very similar to a MCA. Your funding amount is based off your monthly business revenue. The lender will review three to six months of your business bank statements and will fund you a certain percentage of your average monthly deposits.
The term is short term and will usually be between three to 18 months. Your payments will be withdrawn from your business bank account at a predetermined daily withdraw amount. Payment withdraws are on business days only.
You will not have the flexibility of your payments to decrease or increase based on daily sales volume.
Accounts Receivable Financing
Do you have cash flow shortages due to having to wait to get paid? If you run a business that performs a service and it takes you 30 to 90 days to get paid for your services and you don’t have the credit score to get a traditional type loan A/R financing is for you.
This type of financing is good for bad credit business owners because your credit is irrelevant to you getting the funds you need. Since you already performed your service the company that owes you the money will be evaluated more for their credit worthiness then your own.
A lender will fund you any where from 70 percent to 90 percent of you invoice to the company who you performed your service for. Once the company is ready to pay the invoice they will pay the lender directly.
The lender will take their predetermined fee from the proceeds and pay you the remaining difference. Funding can be as quick as five to seven business days (actually as fast as .a few hours in most cases)
Equipment Sale-Lease Back
For business owners with low credit who need funds and have equipment they can leverage a sale-lease back is a good way to access capital. If you own your equipment or have a decent amount of equity you can utilize a sale-lease back.
The way it works is the equipment financing company will purchase your equipment from you providing you with a lump sum of cash. They will turn around and lease the equipment back to you without it ever leaving you businesses possession.
You will pay a monthly payment for a term ranging from one to five years. At the end of the term you can buy the equipment back, extend the lease, or upgrade to newer equipment with another lease.
Asset Based Loan
Company owners who have large amounts of inventory and run into cash deficits between selling the inventory and the time it takes to get paid can leverage the inventory for a line of credit.
This type of funding tends to be very flexible with business owners with low credit. Since the inventory is being leveraged if the business owner defaults on the loan the lender will then own the inventory.
The inventory has to be a physical asset and non-perishable. On average you can get up to 70 percent of the value of your inventory.
The Bottom Line
In the past it was very difficult to get a loan with bad credit. In todays small business lending market there are several lenders who are ready and willing to lend you money even with troubled credit.
Getting financing with low credit will come at a higher cost. With the proper research and carefully weighing your options you can find the right financing solution for your business.