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Is Bad Credit Stopping You from Getting Business Loans?

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Is Bad Credit Stopping You from Getting Business Loans?

By Marco Carbajo, Guest Blogger
Published: March 11, 2014

In a recent report, over 63% of business owners attempting to find funding say they most often targeted banks. Unfortunately, the success among these respondents of actually getting a business loan was a low 27%.  

However, recent news suggest small business owners considered creditworthy are discovering it to be easier to get business loans from traditional banks. This is good news for the economy since access to funding for small businesses is a part of job and economic growth.

Unfortunately, bad credit plagues a large percentage of small business owners as a result of the financial crisis several years back. The fact remains that it’s harder for smaller businesses ­– even with stellar credit ratings ­– to get traditional bank loans than it is for larger businesses.

Access to capital is the single largest roadblock most business owners face when growing their business. With a business loan, these businesses can hire new employees, purchase additional inventory, buy or upgrade equipment and increase their marketing efforts.

So what can a business owner do if bad credit is preventing them from getting a business loan?

The good news is there are alternative funding programs and solutions providing business owners the opportunity to obtain a business loan or line of credit regardless of having bad personal credit. Instead, other factors are taken into consideration such as bank deposit history, credit card sales, credit partners and other data sources.

Here are several factors that can get you a business loan regardless of having bad credit:

Bank deposits – A business with regular bank deposits can put its cash flow to work with revenue-based loans. This program is based on the deposits going into the business bank account on a monthly basis. Typically, a business can obtain a business loan equal to 10% of its annual gross deposits regardless of having bad credit. Another benefit of this program is the time it takes to get funded, which is approximately 7 business days.

Keep in mind the loan term can be as long as 18 months with this program, with rates slightly higher than a traditional bank rate. It requires no collateral, financials or tax returns. Repayments are made in small increments every day via ACH from the business bank account.

Credit card sales – This type of funding program, known as a merchant cash advance, provides businesses with upfront cash in exchange for a portion of future credit card sales. For businesses that have regular monthly credit card sales but struggle with bad personal credit, a merchant cash advance may be a viable option.

However, be very selective on what merchant cash advance provider you select. Some providers can cost as high as 38% while others can be as low as 12%. In addition, when it comes to repayment, the majority of merchant cash providers take a fixed percentage of your daily credit card receipt volume until the advance you took is paid back. Other business cash advance providers may offer a fixed monthly installment payment for its repayment method.

Credit Partner – Using a business partner(s) as a credit partner for obtaining lines of credit in the form of business credit cards can be a viable solution to overcome a personal credit challenge. A business partner who has strong credit scores is the best place to look. You may also want to consider someone who may be interested in participating in your business as a potential credit partner.

This method does bring risk to the credit partner because they are cosigning with the business to obtain funding. However, it’s important to note the type of unsecured business credit cards I am referring to will not appear on the personal credit reports of the cosigner unless they go into default.

There are many other types of funding programs that offer small business owners the opportunity to get business loans or access to cash without having perfect credit or subjecting themselves to all the rigorous analysis, cumbersome paperwork, lengthy process and aggravating timelines that comes with a traditional business loan.  

About the Author:

Marco Carbajo

Guest Blogger

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in 'Fox Small Business','American Express Small Business', 'Business Week', 'The Washington Post', 'The New York Times', 'The San Francisco Tribune',‘Alltop’, and ‘Entrepreneur Connect’.

Comments:

These are all great, though I wouldn't forget to have a business plan put together and some clarity in knowing what you need the loans for. It is always important to find ways to expand your credit for sure, but no matter what approach you take to obtain capital, it will be vital that you have the confidence of both the lender and any business partners - especially if they are acting as your good credit partner! We discuss on our blog the necessity of business plans before approaching lenders. It demonstrates to the potential lender that you are a serious borrower and that in lieu of the good credit you might not have at the moment, your sense for planning and preparedness are reasons to trust you can be a quality borrower. We get into this and other topics describing our own bad credit business loans options: https://shieldfunding.com/business-loans/business-financing-options/bad-credit-business-loans/.
In order to account for the risk involved in extending credit for high risk borrowers and still turn a profit, many online lenders have become extremely adept at finding creative ways to charge high rates. If the borrower starts to fall behind, they quickly move in to make sure they get as much of the money they are owed as quickly as possible, often putting the borrower’s business, bank accounts, and credit profile in jeopardy.In short, online lending is often not the financial oasis it seems to be. Once you get a little closer, you’ll see that much of the glitter is just a carefully crafted mirage. Don’t fall for it! In many cases, there are better and cheaper options available to you. You just need to make the effort to look.
Hi. I am wondering if anybody has ever had an SBA biz line of credit convert to a loan? Apparently this happened to my husband's SBA line of credit some years ago after he stopped using the account and began to make payments on what he owed. Last month, without warning and even though the line of credit was being paid down faithfully on time (auto withdrawal), my husband suddenly received a final bill for $11,000. No warning. The bank told him that his only option was to apply for a loan from the bank to pay the balance on the SBA line of credit/loan. He did so, but was turned down. We just learned this day. They've told him to expect a call from their collections dept. to work out some sort of payment arrangement. We're a bit stunned. Our account suddenly went from excellent to collections. What can we do? Also, nothing on the monthly statements from the bank indicates that the line of credit was converted to a loan. All statements refer to a line of credit. It wasn't until we made several calls to the bank and visited two local branches that we finally learned what happened to the account. Any suggestions?
I'm the owner of a Veteran Owned Small Business. Over the last 20 years I have owned several small medical sales companies that have done very well and I always had excellent credit scores. Five years ago I was a part owner in a medical company the filed bankruptcy and in turn I filed bankruptcy. I have a new medical product that would be a great product for the VA and DOD but I'm having trouble finding financing, any suggestions?
good news thank for share
The reason I am looking to start a business because I know I could make more money than my current job, what is stopping me from it is my credit report. I would like to know if there is a credit program to help me with that problem. plus I found a solution for people who want to own or start up a Roller Skating Rink/ Family Entertainment recreational center. Get into contact with me I can help.
Hi Tony, While credit challenges are issues one should definitely address, there are many solutions and programs available to help guide you in the right direction to not only get your credit back on track but also assist you in starting your own business. Feel free to take advantage of my free e-course titled '7 Steps to Superior Credit' available at repair my credit course.com.  
Hi Tony, I work for a non-profit company. We have a program that can help. Please visit www.united-credit.org and click on the video link, there you will learn about our process and how I can help you get the credit you deserve. Feel free to call me at 240-319-8952 if you have any questions.
Is there any type of financial assistance or loans for starting up a new business for individuals who unfortunately have bad or low credit scores? Also any assistance for people like myself who have become disabled and collect disability?
It is true that alternative funding programs is really going to work wonder for many aspirants to start their business career in more confident manner. As this a great way to bring more people to fulfill their dreams through correct financial support.

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