You have a lifelong dream of opening your own small business. You have the plans, and all the details are sorted out. You’ve started looking at spaces to open your business in, but you hit a wall.
Your credit is too bad for most lenders to risk a loan with you as a borrower. We will be discussing how you would get a small business loan with bad credit. Bad credit is defined as having a score between 300 and 629.
Things to Consider Before Choosing How You Will Finance
The lower your credit score is currently sitting, the higher your annual percentage rates, fees, and interest rates will be. If unpaid customer invoices are laying around, you can get cash through invoice factoring or financing. If you don’t need the money right away, consider the possibility of raising your credit score, and this could qualify you for more loan and financing options.
The first step is to request your annual free credit report and assess how bad your credit score is. You will need to know this information, so you know which loans may still be available to you. There are several options you can apply online to get the process started. If you do need the money right away, there are short-term loan options available that work with customers with bad or no credit.
If Your Credit Score is Under 500
Kabbage: kabbage is a loan company that offers small business loans to people with a credit score under 500 and below. kabbage is one of the few companies who doesn’t have a minimum line of credit requirement. They offer loans from $2,000 to $150,000 and take your online sales and banking history into consideration. Kabbage provides six to twelve-month loan terms, with a higher annual percentage rate, beginning at 24 percent and going up.
Fundbox: Fundbox is a company will help you cover customer invoices on short-term loans. They specialize in covering invoices that are 60 to 90 days past due and will cover them at 100 percent. Fundbox can approve you for up to a $100,000 line of credit, but this credit has a high annual percentage rate attached to it. Once you get this loan, you have 12 to 24 weeks to repay it without penalties.
If Your Personal Credit Score is Between 500 and 600
Term loan: If you choose Term loan, the higher your score, the lower your annual percentage rate will be. They offer loans from $5,000 to $50,000 for borrowers, and you either repay it daily or weekly over the course of 3 to 36 months.
BlueVine: This company will cover your invoices beyond what Fundbox is capable of covering. They include loans from $2,000 to $2 million for invoices that are 60 to 90 days past due. The loan term is short, at just 1 to 12 weeks to pay it back, and has an annual percentage rate of 17 percent to 60 percent.
If Your Personal Credit Score is Over 600
Street Shares: This company provides lines of credit for people with credit scores over 600. You will only need $25,000 annual revenue to qualify for this business. Street Shares offers loans ranging from $2,000 to $100,000 for term loans and $5,000 to $100,000 for lines of credit. You have a little more room to make payments with this company, anywhere from 3 to 36 months. The annual percentage rate ranges from 9 percent to 40 percent.
Startup Business Loans
If your business is less than one year old, or just starting out, there are loan options for you, including a microloan. A microloan is a small investment averaging out to around $13,000. It can go up to $50,000 in rare cases. This loan is for anyone who hasn’t missed a payment in the past year, and their business is less than one year old. The two downsides of this type of loan are it may not be enough to cover everything you need, and they look for disadvantaged or disabled applicants before looking at anyone else.
This can make it difficult to obtain a loan this way, but if you manage to do it, they are solid loans to get. We have discussed a few loan options for people with bad or no credit. Experts advise that if at all possible, raise your credit score and apply after you have gotten it above 500 or 550. This will save you money with high-interest rates and additional fees in the long run. The higher your score goes, the more lenders will take the time to consider you for a loan. Your dream of having your own small business can happen, you just have to be willing to work hard to get it.