Facing Low Credit Scores? Here Are 4 Ideas to Get a Business Loan
Whether you like it or not, your credit score is tied to you for life. It’s like your SAT score, you can’t wish it away no matter how bad it looks on paper.
In financing, if your credit score is high chances of securing loans from lenders and credible funding sources are higher. The same can’t be said when your scores are low because your chances of getting credit offers are slim, or zero.
Low scores won’t go away, though. In fact, you can’t avoid them. But you can get them back on track. How? By looking for ways to fund your business such that it positively affects your score. Once your scores accrue, you can secure credit offers from lenders and grow your business.
If you are an entrepreneur facing low credit scores, this post brings to light four ideas you can employ to find financial assistance you require for your startup venture
1. There’s more for you than bank and credit card financing
The number of new small businesses that receive funding through bank loans and credit cards is high. Yet these funds only cater 25% of their funding needs. The rest (75%) an early-stage entrepreneur has to outsource elsewhere.
This information should comfort you because it means you can find other sources to help fund your business irrespective of your credit rating. But there’s a hurdle still to cross.
These alternative lending programs – through a good option – impose high-interest rates to individuals with bad credit. Lending programs and banks often do this to make up for the individual’s credit risk, which is fair if you think about it.
The most common option banks offer for such individuals is a home equity line of credit. But this is a risky option. It means putting your home as equity to fund your startup venture. If you are late on payments, or your startup suffers significant losses, your home is put on sale to recover the loan. Be wary of this option. However, it’s a viable alternative compared to banks and credit cards.
2. Get financial help from close acquaintances and family
Most businesses were mere ideas before being funded by relatives and friends and became a reality. If you have a good entrepreneurial idea, close family members and friends are perhaps the best people who’d be willing to finance you.
If statistics are anything to go by, almost 50% of startup ventures got funding from close relatives and acquaintances. That’s because most of them want to see you succeed. They feel compelled to help you achieve your goals, and that’s great.
The good thing with seeking help from friends and family is, they don’t ask for your credit rating. None of that matters to them. In fact, they won’t dwell much on your business concept either. All they want is to see you succeed. To soar to greater heights because they trust you.
Banks are a different cup of coffee. They’ll want to see and understand your business concept. Some of them will even evaluate your character, personality before offering you a loan. But since the inception of automated lending, credit scoring system has become a key component to lending. Hence your credit score is important as well as an indispensable.
Seeking loans from friends and family has its perks. If you didn’t know, you can rebuild your credit scores this way. Get a loan from a reputable lender or credit agency, repay the loan with the help of friends and family, and then ensure it reports your loan payments to credit bureaus.
3. Research more about online lenders and microlenders
There are other funding options you can look into like small online lenders. They are eager to bankroll your startup regardless of your credit history. They disburse loans to entrepreneurs ranging between 5K and 25K.
The good thing about these web-based lenders is, they provide capital to individuals with credit risk. Also, they report any payments done to credit agencies. You are, therefore, guaranteed your credit score will raise after making timely payments.
Before you seek financial assistance from a web-based lender or microlender, do your due diligence. Take time to compare rates, ask questions, read in between the lines for any hidden catch. Shopping around helps you decide on the best loan options, and learn the risks involved.
Some of the popular online lenders include, but not limited to:
To the average borrower from the above sources, these web-based lenders will charge you high-interest rates on loans especially if you have a low credit score.
For instance, the average rate on business loans for individuals with low credit on Accion is more than 12%. At Prosper, it’s 20%. When it comes to loans from friends and relatives, the average rate is at 7.6%.
If you opt to secure a loan from a small online lender then visit website here but ensure to repay on time. This will positively affect your credit rating in the future. Most states now have at least a web-based lender you can access.
4. Get “free” money
Want to avoid paying debts? Take advantage of grants and gifts. This option provides you “free” money as an early-stage entrepreneur to help finance your new business. But it is not as easy as it sounds. It will take you long hours of searching and almost wanting to give up. In fact, chances are you’ll not get access to “free” money at all – to your eternal regret.
Before you can decide on which government program to take on, consider if the programs support your type of business. Grants are limited to certain businesses like:
- Health-care businesses
- Technology companies
- Retail businesses, etc.
If the said businesses are in low-income areas, chances are high they’ll get government grants. ‘Free” money can also be in the form of gifts from friends, former employees or even relatives and friends. All these people can assist you in various ways not just monetary wise.
As a would-be entrepreneur, it becomes difficult to access startup capital especially if your credit scores are low or holding you back. But not to worry. There are other surefire ways to find the funding you need including not entirely focusing on credit cards and banks loans. Look beyond them. Go for other lending programs at your disposal instead.
You can also seek loans from family and friends or better, look for a web-based lender or microlender to assist you to secure a loan. Last of all, get “free” money in the form of gifts and grants. Choose which idea suits you best from the four. You never know what option will land you startup capital.
Sometimes, you may need a house or car ...