Starting a business can be a very hard process, statistics say that 90% of the new businesses fail in their first year of operations.
The main reason for this is financing. Most of the financial institutions do not lend money to new businesses because they fear that they may go under before paying back the loan.
Having bad credit and no collateral can even cause it to be harder for you to get a business loan with bad credit and no collateral, this does not mean it is impossible though
Getting A Business Loan With Bad Credit
Bad credit may cause you to find it hard for banks to listen to your business plan, this is why you should then look into other alternative financing options such as online loans, personal loans, merchant cash advances, and many others
If you do your research and shop around you will find that it is possible for you to get a business loan from some lenders without them doing a credit check.
When you apply for unsecured startup business loans [ an unsecured loan is a loan where you do not need to put up collateral such as car or a house], it can help to do some prep work to strengthen your pitch.
You still need to present an in-depth business plan that outlines your strategies for success and how you plan to use the funding even when you have bad credit, I believe you need to strengthen you business plan even more so that you have some form of advantage.
Having a business forecast can also be help the lender get an idea of your expected cash flow in the coming months or year. As a new business, you may need to provide personal information as well, such as your tax returns.
Options For Business Loans With No Collateral
We are going to look at some of the options you might have for you to get an unsecured small business loan. Like mentioned above it is hard to get a loan with bad credit but it is not impossible.
These products may come with high interest rates so i would advise you to always read the fine print on the terms and agreement of the loan.
If you haven’t checked your credit score yet you can always do so here. Check Credit Score
1. Online Business Loans
These lenders may offer alternative bad credit business loans and getting a loan may not be as hard compared to traditional banks. You can also explore business loans for specific groups, such as youth with bad credit. Getting approved for this type loan can be very easy and fast but you will still need to provide proof that you can pay back the loan.
Cons: They come with a very high APR and a shorter repayment term.
A personal guarantee will be required, which means your personal credit score can be impacted for any late payments or delinquency—and your personal assets may also be at risk to pay back the loan if your business isn’t able to.
2. SBA Loans
There are many lenders who offer US Small Business Administration (SBA) loans to startups. These loans come with a guarantee as long as certain underwriting guidelines are met.
Startups with bad credit may be able to qualify for an SBA loan in some cases. The most popular option for start-ups is the SBA Microloan program, it lets you borrow up to $50,000. It is important to note that some lenders require a minimum personal credit score of just 545, although you may find some requiring at least 620 to 640.
A business plan is also nessecary for you to apply for this loan. Please note that SBA microloans is a type of secure loan so it generally requires collateral and a personal guarantee.
3. Peer-to-Peer Lending
This is a form of lending service which is another alternative to traditional lending options like bank loans. Online platforms match potential borrowers with potential investors. The eligibility for this type of loan will generally vary from platform to platform.
Some online lenders have a minimum credit score requirement, which can potentially make it more challenging for businesses or individuals with bad credit to qualify. The process for funding is generally quick, but borrowers with low credit may find that interest rates are higher than a traditional loan.
4. Crowdfunding Platforms
This is a unique form of financing, but it can help launch your new business without you having to worry about a bad credit score. This is when you create a campaign to get interest in your business and get financial backing in one of four forms: equity, donation, rewards, or loans.
Crowdfunding helps you to start your business but you will need a very strong marketing campaign for you to be able to meet your funding goals. In some cases you may fail to get people who buy into your idea and fail to get any funding at all.
5. Credit Cards for Small Business
If you have a small business credit card this may be an alternative way to help finance your costs of starting a business. If you have a strong personal credit score you will likely qualify for this, even if your business credit score is on the lower side of the spectrum or simply not established yet.
This is because most of these cards do come with a required personal guarantee. They may also come with an annual fee and these may have perks or rewards, but it is wise to compare these costs before applying. You should know that, your card’s APR is also an important factor, especially if you expect to carry a balance from the beginning as you get your startup off the ground.