Loans are usually given based on your credit rating. If your credit rating is good, then your chances of securing a loan for your business are very high. However, what happens when your credit score is not in a good standing and you need a loan for your start-up business?
For the financial institutions, they usually have two ways of addressing your case: either they reject your application or else charge you a high-interest rate for the loan facility. Well, you cannot be sure of this situation especially when you desperately need that money to get started.
The key to receiving any funding for your startup business is usually pegged on a number of factors. One of them as already mentioned is credit rating. Other factors may include your vision and value proposition in your current business pursuits.
There are business owners who didn’t have a good credit but still managed to get funding for their businesses. While that is possible, it is always advisable for you to repair your credit score in order to qualify for these loans and most importantly help you get better terms. Meanwhile here are a number of options to consider if you have bad credit.
Venture Capital. This is usually gotten when an investor offers to give you money in exchange for equity in your business. The investor may also want to have an active role in the making of your business decisions. If your startup business has a high-growth potential, your chances of getting venture capital are too high. This is a commonly used method of investment by wealthy individuals. If you have a brilliant idea, they will be willing to invest in it. To qualify for this funding, put in place your business plan and any other relevant material that will help investors to conduct due diligence on your startup.
Grants. Grants are funds given out that need not be paid back. The only catch for you is their source that is usually from tax dollars. This means that you have to restrict the funds to the use for which they were issued to you. These can mostly be accessed from local authorities and non-profit organizations.
Your close associates. Look at your inner circle of family and friends. If you are able to get something from your personal savings, friends and family can be of much help. These people won’t look at your credit rating to lend you some money. All they need is to be convinced that you are trustworthy and responsible. Trust is your only security in this scenario. The only risk that may arise is damaging social relationship should you fail to pay back.
Crowdfunding. There are several crowdfunding platforms from which you can form a campaign for your startup business. After launching your campaign, you make an effort to raise the funds you need for your business from the crowd. What this means is that, investors accredited to these platforms will contribute to your business campaign in exchange for some form of equity in your business.
Personal Loans. People who have been in business for about a year or two can easily get funding for their business because they can present their cash flow records. However, you can get a personal loan for your startup business from some lenders. Some will be very strict on your credit score while others will be lenient if you agree to pay the high rate of interest imposed on bad credit business loans.
Microloan. The Microloan program was formed and funded through the Small Business Administration to help aid business with expansion and startup costs. These types of funds are usually given to non-profit intermediary lenders, which are community-based and provide help in addition to the money you will receive. You can use the money for supplies, for buying machinery, furniture or as working capital among other uses.
The Bottom Line
Even if you have a bad credit score, you still have loan options for your startup business. Don’t worry if you have fallen into this predicament and you fear you might not get the money to get started. The most important thing in such a situation is to get your idea well-refined and polished to win the attention of investors. Don’t allow your credit report to weigh you down. Focus on your business idea and make people have confidence in it. Once you succeed in doing so, they will be willing to give you the money to get going.