You’re starting a new business, you need financing, and you need it now. Unfortunately, your less-than-stellar credit scores are putting you in a higher risk category than traditional lenders and credit card companies are comfortable working with.
The bad news is that your credit scores are going to remain a thorn in your side for as long as they remain low. The good news is that there are tried and true methods of raising them, and that you do have other financing options in the meantime.
These options might mean a little extra hustle on your part, but plenty of entrepreneurs have been in your shoes and survived. Let’s take a closer look at how you can find funding in spite of your poor credit scores, as well as at how you can start repairing those scores right away.
1. Look to Friends, Acquaintances and Family
Here’s where that “extra hustle” mentioned above kicks into high gear. We all wish we had a rich uncle just aching to throw money at our kickass business ideas, but very few of us are that lucky. If we’re going to find financing in private circles, we have to cast as wide a net as possible, and think in terms of multiple donations versus one big one.
When looking for private financing, the first step is to get over any jitters you may feel. You’re hardly the first entrepreneur to have turned to family and friends to get a project off the ground, and you won’t be the last.
Start by making a list of all the people you know. The whole point of this exercise is just to put down as many names as possible. Next, begin winnowing down the list. Prioritize those names that 1) you trust; 2) have money; and 3) have business experience. A lack of emotional baggage is also a plus.
Once you’ve got a solid list of names, it’s time to start pitching. Make sure you have a business plan prepared, and try to sell your idea with all the enthusiasm and conviction you can muster.
2. Try Lenders and Business Credit Cards With Low or No Credit Standards
The rise of alternative lending means that entrepreneurs have more financing options today than at any other time in history. Some of these lenders have crafted loans and business credit cards specifically for applicants with poor or middling credit.
The downside is that you’ll usually see a higher interest rate and less generous repayment terms with these options. Your poor credit scores put you in a higher risk category, and lenders will impose stricter conditions to offset potential losses.
Do your homework on the alternative loans and credit cards available to you. Consider options like secured business credit cards, which require a cash payment or collateral up front, but can be valuable tools in repairing your credit. Decide whether the higher interest rates are worth it, and make a careful repayment plan. As soon as you start making your monthly payments on time (or even better, early), you’ll begin rebuilding your credit scores.
3. Explore Microloans and Crowdfunding
Microlenders are non-profit organizations that specialize in offering small loans to startups or business owners with bad or no credit. These loans max out at $50,000, but are usually much smaller than that. Their slightly higher interest rates are balanced by the relative ease of the application process, but the biggest plus is that microlenders generally help you through the application process, with an eye to helping you build a solid enough credit history that you can qualify for more traditional financing in the future.
Crowdfunding is another great financing option for entrepreneurs with poor credit scores. It’s an effective method for producing buzz about your business, pre-selling your service, idea, or product, and potentially drawing in large investments from investors interested in securing ownership in your company.
Popular platforms like Indiegogo and Kickstarter take a small percentage (between 7-12%) of the total proceeds of your campaign. Platforms like Community Sourced Capital let business owners crowdfund business loans at 0% interest plus administrative fees. Fundable and Microventures invite entrepreneurs to sell partial ownership of their company under good terms and with a monthly administrative fee.
The most successful crowdfunding campaigns tell an exciting story from a passionate point of view. And while the dollars-and-cents cost of crowdfunding usually isn’t high, the demand on time and energy is. Make sure you have a smart, polished, energizing campaign all ready to go before you announce your intentions to fundraise. With crowdfunding especially, first impressions are everything.
This article was originally written on January 12, 2017 and updated on March 24, 2020.