If you’re looking for ways to finance your struggling business but don’t know how to get a small business loan with bad credit, you have the luxury to check out a number of options out there. A poor credit score might hinder your potential to acquire the much-needed cash injection and you’re your business to the next level. It turns out to be a challenging situation when lenders start rejecting your local requests.
It is understandable that poor credit is a high-risk situation for lenders, but not all of them hail from this school of thought. There are many other institutions that bail you out with disbursement of small business loans despite your bad credit history.
So even with the bad credit score, you can apply for the loan with some financial companies like Small Business Administration that can provide the loans listed below.
This is a traditional type of loan for the individuals with low credit score. Short-term loan runs less than a year or up to 18 months or so. You can pay the interest rate on a monthly or weekly installment and later pay the full principal amount when the contract ends. You can also pay the principal amount with the interest rate on a monthly or weekly installment. Furthermore, short-term loan has high chances of acceptance, required limited paperwork and quick funding
However, the interest rates in short-term loans are higher than the long-term ones.
Business Line of Credit
Business line of credit (LOC) is totally different from the traditional loans. This type of loans can allow you to set a maximum amount of credit with the lenders. You can also opt for the option to consume only the amount that you need for the business. It will allow you to pay the interest only on the amount that you have consumed. It is very unlike traditional loans. Moreover, the payment does not require a particular time to pay off the bill. You can make daily, weekly, monthly or up to 12 months payments.
Account Receivable Financing
Account receivable (AR) is a mode of financing that businesses use to turn their unpaid invoices into instant cash. Businesses generally opt for this financing to do away with their financial crunch. They face such situations when their clients take more than agreed time to pay off their invoices. The best part about account receivable financing is that it doesn’t put you into debt. You just get the amount that was already owed to you. In this mode of financing, lenders are not perturbed by your credit score, rather they verify the quality of the unpaid invoices.
So even if you have a bad credit score, you can still get about 80-90 percent of your unpaid invoices. Your job ends once you get the amount from the lender. Now it is the lender’s job to recover the money you’re your client.
If you need new equipment for the business and your bad credit score comes in the way, you may go for an equipment financing option. It allows you to procure the equipment quickly and pay the lender in installments. However, there will be a percentage of a down payment charges by the financial institution.
Merchant Cash Advance
A merchant cash advance is not really a loan. You can get a lump-sum amount required for your business and later repay from your credit sales. It means the amount that customers pay through debit or credit card will link to the merchant and cash sales will belong to you. However, interest rate in merchant cash advance is on the higher side than the other loan options.
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