Business loans for bad credit are a type of financing designed specifically for people with poor business credit. They are more affordable than bank loans, but these loans are difficult to find. Because of the risk of default, many bad credit business loans come with high interest rates and fees. This can lead to a high monthly payment that could strain your company's cash flow.
The entire sector of alternative lenders is dedicated to bridging the credit gaps that banks aren’t willing or able to provide. Whether you are starting a business with poor credit or your company is in financial straits, bad credit business loans are the only option.
Let’s explore this article to learn about the best small business loans for bad credit.
Top Small Business Loan For People With Bad Credit
Before we discuss what lenders consider when approving borrowers and what terms you can expect, here are some of the top business loans for people with bad credit.
Community Development Financial Institutions (CFDIs):
CDFIs are community development financial institutions (CDFINs) providing financial services to underserved communities' borrowers. These borrowers are often minorities and low-income borrowers who lack access to traditional lenders. CDFIs include banks, credit unions, depository holding companies (DHBs), loan funds, and venture capital funds (VCFs).
Small businesses in underserved communities can seek funding from CFDIs. Even with bad credit, you can get a low-cost small business loan from a CDFI. Also, many CDFIs offer their borrowers various financial education programs. But unlike an online lender, it can take weeks or even days to get the funds you need, and financing is only available to small business owners in low-income or minority neighbourhoods.
Rapid Finance:
It takes time to build or rebuild your credit; if you don’t have that much time, reach out to rapid finance. Although they don’t set a minimum credit score for our clients, they do say that they consider several factors when deciding whether or not to approve you for a loan.
They offer many loan types, and funding ranges from $5,000 to $1 million. Most loans are funded the same day they are approved. Also, not much documentation is required to apply for a loan, making the process even faster.
Online Lenders:
Regarding bad credit business loans, online lenders are one of the most popular options. Alternative lenders provide funding options that are more affordable for borrowers with bad credit than traditional banks. Some lenders will accept a bad credit score of 500+. These lenders can also assist you in starting a business because they are more flexible regarding business hours and annual revenue.
In most cases, you can apply online in minutes and receive quick funding approval. Some lenders also pay out funds immediately or the following business day after approval. Some online lenders provide business financing options with low credit scores and time in business guidelines. So, if you are starting a business and have no money or bad credit, you can start here.
Invoice Factoring Companies:
Most invoice factoring companies allow you to trade your invoices in cash for up to 85% of their value. You don’t need perfect credit to be eligible for invoice factoring. The invoices are collateralized, and your clients’ creditworthiness is more critical to the factoring company than your personal or business credit. Since the factoring company buys unpaid invoices, it is responsible for collection.
After collection, the factoring company will pay you the remaining amount you owe after factoring fees. If you have bad credit, an invoice factoring company can help. However, this method of bridging cash flow gaps usually costs more than other business financing options.
Balboa Capital:
Balboa Capital looks at more than just your credit score when approving loans. Other factors to consider include how long you’ve been in business and how much your business sells yearly.
With loans starting at $5,000 and ranging from $250,000 to $500,000, Balboa Capital can meet the needs of many small business owners. Unlike other lenders, Balboa Capital does not require collateral and offers a wide range of loan types and terms.
Types Of Loans You Can Get With A Bad Credit
If your credit score is in the fair or low range, here are a few of the most popular loans you can apply for:
Microloan
According to the SBA, microloans could give your small business up to a $50,000 loan. The SBA offers microloans to be managed by nonprofit lending organizations. A microloan can be used for various purposes, including supply & inventory, working capital, new furniture building, fixtures equipment purchase, or lease. The average small business borrows around $13,000 through a microloan.
Short-Term Loans
Short-term loans are repayable in 3 years or less. Lines of Credit are repayable in 1 year or less. If you have a good credit score, you should take advantage of short-term loans because they are low-cost and easy to approve.
Merchant Cash Advance (MCA)
An MCA isn’t a loan. It’s a type of financing backed by the sale of credit cards (or, in some cases, income in general). Depending on how much you’re selling, a lender may offer you a lump sum payment for a percentage of your card sales (plus fees) until you pay back the loan. MCAs are costly and often seen as a lender’s last resort.
Final Thoughts
Best small business loans for bad credit are indeed a piece of cake for businesses with low credit, but before you accept any financing, do your research. Ensure the lender you are considering is reputable and not one of the predatory lenders. Read through any repayment terms carefully before you sign. Ask your attorney or accountant to review them if you can. Only accept funds you can afford to pay back in a reasonable time. If you can’t, receiving more funding could speed up the death of your business.
