Bad credit scores can happen to good people. Health care bills, sudden emergencies, youthful exuberance, or just a losing streak can all create financial problems. Most of us deal with the damage and move on, a little wiser, and more cautious. Sadly, banks tend to assume that if you ever had a money problem, it will always be a bad financial risk. And they don't want to lend money to someone who might not pay it back.

But as a small business owner, you need capital to run your business. You may need to expand inventory, equipment, or retail space, upgrade technology, or reach more customers through marketing. You may need a cash inflow to meet your current obligations while waiting for your suppliers or customers to pay you.

Conclusion: you need to invest in your business, and to be successful it needs to grow. How can you do this if you can't get a small business loan? Fortunately, there are options for small business owners with a fragile credit history.

Credit Scores and Small Business Loans

Business loan risk is calculated primarily through a credit rating

There are other factors that come into play, but a credit rating is often the first thing banks check. Typically, they look at the FICO score - a specific type of credit score that determines personal (consumer) creditworthiness. FICO personal scores range from 300 to 850. With FICO, a score of 800 and above is an excellent score; a rating of 700 and a half up is very good, and a rating below 600 is problematic. Any score below 500 indicates a severe credit risk.

You can also have a business credit rating if you have a merchant bank account and a business credit card. Business credit scores are measured from 0-100, with 75 being considered an excellent score. It's worth checking out, but chances are, as a small business owner, your personal rating will be reviewed when you want to get a loan. So, start by getting a copy of your credit reports and find out how your score is ranked.

Bad Credit Small Business Loans

If your credit rating is low, you have options but you need to be realistic - you are going to pay more in fees and interest rates than you would otherwise. You could wait a year or two and work hard to improve your credit score before applying for a loan. If you don't need financing immediately, this is a very good option to consider. You may be able to borrow cash to obtain a secured loan from your credit union, which will raise your score if you pay the debt on time. You can also consider getting a secured business credit card. And you certainly should pay all your bills on time, as this is critical to establishing a good credit score.

If you need financing soon, then you will want to seek sources that focus on your ability to pay now, and not your credit rating. In general, applying for small loans bad credit knowing that you do not meet the proper credit rating requirements of a creditor is at best a waste of time, and at worst can result in an even higher credit rating. low. The best decision is to seek funding sources that specify that they will work with small business owners who have bad credit.

Alternative Sources of Small Business Loan

Alternative creditors often do business online, and many acts as intermediaries for institutional or private investors. Those with lower credit scores can look for alternative financing offers based on business income, rather than credit scores. For example:

A merchant cash advance is not a loan - it is an advance on expected income. If your business has a consistent income of more than $ 5,000 per month, you may qualify for a cash advance on that income, which you pay with a percentage of your sales on a daily / weekly basis. You'll also pay interest and fees, so in the best-case scenario, you will have a plan to turn the advance into a new sustainable source of income.

Invoice billing provides you with an advance on money owed to you on unpaid customer bills. With this type of financing called invoice billing, your clients' financial history is more important than their own credit history. You will be charged a percentage of the advance amount, depending on the payment terms, whether you choose to sell the invoice to the finance company, or collect the invoice and pay the financier directly. Note that this is not a solution for dealing with delinquent clients - a collections firm is the best way to address that problem. You would use invoice billing to bridge the gap between billing for your work and actual pay - typically 30 to 90 days.

Alternative creditors also offer short-term loans, equipment financing loans, and other options.

How to find financing in the face of bad credit

You can Google "Bad Credit Business Funding" and slowly scroll through the many options. An easier way would be to work with a company that links small business owners with funders.

For example, to get pre-approved by One Park Financial, you need to meet the minimum requirements - that the business has been in business for a minimum of 3 months, has at least $ 5,000 in gross monthly income, and has a minimum credit score. of 450. Small business owners who have been pre-approved can speak with a financing expert about their business needs to determine what type of financing best meets their needs. One Park Financial works with a network of funding sources and will guide you through the process to obtain the desired financing. Visit oneparkfinancial.com, or call 855.218.8819 for more information.