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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 Updated: March 8, 2016

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
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:

I am a new small business owner. My wife and I started a company together nine months ago. Up until two months ago both of us worked the business together. She has since got a job with a good salary plus commissions. We had all our eggs in one basket to long and found ourselves in a hole. Now we are on the verge of loosing everything because we can't get a loan to get caught up. I'm either told we haven't been in business long enough or credit scores are too low. Any suggestion on where to get help?
Hello, I am planning on starting my own business, a coffee/tea shop. I already secured a location and have necessary permits for construction however, I need to borrow capital so I can start the construction. I have a bad credit because of my student loan. Will I be able to get funding through SBA loans?
I have an invention (medical device) that needs to have funding to get it marketing for medical expos to be picked up by manufacturing. Would SBA be able to help me gather the funds to begin the process of the model and marketing? And I do have personal issues with credit. I have the studies done for my invention and I am trying to pay for the patent pending status which is included in my fund request.
I am a small business owner who has been in business for 8 years but now my small business is in danger of closing within the next month or 2. My business debt is sky high and I have less customers than ever. Is there a way to stay open through some kind of government sba funding....
I am trying to reopen my business and I can't find a bank willing to provide me a business loan not even when I offer to put my real estate for collateral. I need fund for inventory, equipment, repairs and starting capital so I can hire. I am in the process of trying to get my credit in order. Please provide me with advice on gaining funds for my business needs.
Hi Daisy, Usually banks should be able to do financing if you are offering your real estate as collateral. It will be a commercial mortgage with SBA guarantee attached especially if your credit score is low. Because of real estate involved unfortunately this process takes longer than other loans as the property needs to be appraised. Also, they might consider this a start-up if you haven't been in business for last few years, even if you were operating the same business few years ago. You might want to contact your local SBDC and form a business plan with next three years cash flow projections on month by month basis. Hope this helps!
We own a transport business, and have bad personal credit but need to fix our truck in order to stay running, we make on average between 4,000-10,000 per month, and need a loan or credit card of about $3500, any ideas?
Hello; I have the opportunity to purchase a waterman`s business that is current. He wants to retire and sell -out. This includes his boat, all gear needed and licenses.I would be able to deal with the same buyers and live very close by. I have some experiance with the crabbing methods and the seller is willing to teach me the oystering aspect. Many people here also hold full-time jobs that enable them to do this as well - I have done this before. However my personal credit has recently nose-dived after being in a very good catagory. I am looking to purchase this business for around $20k, and as I am told, could be made up in just this oyster season.Where should I look for a loan? Should I include this man`s earnings or perspective earnings in a business plan?
I am trying to restart my business and having a hard time finding a bank. I had a bankrupcy 4 years ago. I have limited funds but was told I have a good business plan. Any help available
I have a great business idea I live in las vegas and would love to turn my property into a place were you can get married, throw a party, have fun getting dressed up and taking pictures. play with farm animals. I cant get a personal loan. I would love to know how I can make this possible.

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