Having bad credit can be a thorny issue for your business especially if you intend to seek financial assistance in the form of loans. The reason for this is because very few banks and other financial institutions will be willing to lend to you like the current evidence (credit history) shows the inability to manage finances as well as low trustworthy in repayments of loans.
Therefore, as an entrepreneur, you might often find yourself in between a rock and a hard surface while designing measures to fund your small business when you have a poor credit score.
However, there still exist options which you can exploit to get the necessary funding. In these options, the aspect of credit history is of not much important because there are other measures utilized to gauge your qualification for credit.
Therefore, in this article, we are bringing to your attention 6 financing options for bad business credit scores.
Working Capital Loan
This type of loans is acquired to finance the daily operational expenses of a company. It is basically a short term liability used to cover short term operational needs of a business such as the costs of payrolls and rents.
This type of loan is usually unsecured and therefore it is possible to acquire it even with poor credit history. However, it is good to remember that the working capital loans have a fixed and regular payment plan which in most cases is on a monthly basis.
Line of credit
Technically, this is not a business loan although many entrepreneurs will leverage on it to finance the shortfalls and other abrupt expenses of their businesses. By definition, the line of credit is a kind of engagement between the lenders and customers to establish the maximum amount of money which the lender can give to a customer.
This engagement is in such a way that the customer can access the allocated fund up to a certain maximum and the interest will only be charged to the amount borrowed.
The credit score is sometimes not important in this kind of agreement although some institutions will always stick with it as part of risk management.
This type of loan is intended to provide the capital for purchasing the necessary equipment for a business.
In this loan, the purchased equipment act as the collateral and if there is a delay in repayments, the equipment is taken by the lender to cover the outstanding balance and other costs involved.
In most cases, this kind of loan is not based on the credit score and therefore almost every business can obtain it.
This type of loan is extended to a business to help it acquire more inventories such as raw materials and many others.
This is one of the most favorable types of loan especially for those businesses which deal with reselling or stocking of goods as they are required to have a certain minimum threshold of stock for them to remain operational and also for efficiency purposes.
In this loan, the inventories are the collateral and some organizations will not dwell so much on your credit score. Therefore, you can consider this type of loan if you have a bad credit score and you need to purchase some raw materials or other inventories for your business.
Accounts Receivable Financing
This is a kind of arrangement between a business and a lending firm for the latter to provide some cash to the business based on the unpaid invoices sent to the customers. In this arrangement, the lender will give a business between 70-90% of the value of the unpaid invoices and the money will be paid back after the customers settle the debt.
Therefore, no creditworthiness is required in this case as invoices act as the surety for payment. However, invoices to large companies as well as the most recent ones are given the first priority as a cautionary measure
Merchant Cash Advance
This method works in such a way that a company sells part of its future sales for instant payment. In this method, the lender will assess the bank statements as well as the sales report of the company of concern prior to lending the requested amount of money. Although not technically a loan, the dynamics of this method are less the same as to those of a loan.