If you’ve been in business for a while, you may have had time to establish a business credit score. If that score is on the low end of the spectrum, though, you may have a hard time getting financing from traditional commercial lenders.
Fortunately, those aren’t the only way you can get the capital you need to resolve some short-term cash problems or take your business to the next level.
Some lenders specialize in working with business owners with bad business credit scores, and there are ways to get funding without involving your credit history entirely. Here are our top choices.
1. Kiva microloan
Kiva is a nonprofit organization that provides microloans of up to $10,000 to entrepreneurs all over the world. The organization itself doesn’t provide loan funds, rather it has a network of 1.6 million individual lenders who can contribute to your loan request.
Instead of running a traditional credit check, though, the organization relies on what’s called “social underwriting.” Essentially, you’ll have 15 days to invite people in your circle of influence to lend as little as $25 to you. If you reach Kiva’s minimum threshold, it will then open up your request to its network.
Depending on how much you borrow, you could get as much as 36 months to repay the debt. If you need more than $10,000, though, Kiva might not be the best option.
2. Online business lenders
Traditional business lenders tend to have high standards when it comes to your business and personal credit history. But in recent years, several online lenders have emerged with faster approval processes and lower credit requirements.
They can offer these features primarily because, unlike traditional commercial lenders, they don’t have a network of brick-and-mortar branches, which means lower overhead costs. Some lenders that may be worth considering with a bad business credit score include:
Keep in mind, though, that these loans often come with higher interest rates than what you’d pay with a traditional business lender. But if your business credit history leaves few alternatives, it may be worth it to get the capital you need.
If you have a 401(k) plan that allows loans or a cash-value life insurance policy, you can borrow money from the plan or policy without a credit check.
Keep in mind, though, that you’re limited on how much you can borrow from a 401(k) or life insurance policy. With a 401(k), you can borrow up to the greater of $10,000 or 50% of your vested account balance, or $50,000, whichever is less. With a life insurance policy, you can typically borrow up to 90% of the amount of the cash value.
While borrowing from your future solves the credit problem, there are some pitfalls to consider before you pull the trigger. If, for example, you leave the employer that provides the 401(k) plan, the loan could come due immediately.
And if you borrow from a cash-value life insurance policy and die before you pay it back, the remaining principal and interest would be deducted from the death benefit, which can affect your loved ones. If you don’t pay it back at all, the interest could exceed what you have left in the cash value account, which would automatically surrender your policy.
Instead of borrowing money at all, consider reaching out to prospective customers to get the funding you need. Crowdfunding is best if you’re planning to launch a new product or service. In exchange for “investing” in your business, you offer backers an opportunity to be one of the first to try out your new product or service. The more they pledge, the better the benefits you can offer.
Crowdfunding is a great way to get cash if you have a solid product and a creative eye — most campaigns include a video about the product or service to convince backers to pledge money.
But unlike a small business loan, you don’t have to pay back any of the cash. Instead, you give the people backing your campaign the thing you want to sell to them anyway. Websites like Kickstarter, Indiegogo, and Crowdrise are all great places to learn more about how to create a successful crowdfunding campaign and start one of your own.
5. Business credit cards
Business credit card issuers typically require your employer identification number to apply, but the approval decision is primarily based on a personal credit check. So even if your business credit score isn’t in great shape, you can still get approved for a credit card if you have at least a fair personal credit score.
That said, business credit cards often charge high interest rates, so they’re best used for operating expenses and short-term cash needs. If you need to make a big purchase, some cards offer an introductory 0% APR promotion. But otherwise, it may be better to shop around for a loan.
6. Angel investors
If you’re fine with giving up some equity in your business, bringing in an angel investor can be a great way to get a cash investment and some mentoring. After all, they want to help ensure that they get a good return on investment, so you’ll likely get some good advice on how to make some positive changes that can help your business in the long term.
And as with crowdfunding, you don’t have to worry about loan payments having an impact on your monthly cash flow.
The bottom line
Having a bad business credit score can limit your options for financing, but it won’t eliminate them altogether. If you need an injection of cash, compare our top choices to find the one that works best for you.
Also, work on improving your business credit score so you’ll have a better selection the next time you need funds. Specifically, ensure that you always make payments on time and get caught up on any delinquent accounts you may have. If you have business credit cards, work on paying down your balances to reduce your credit utilization rate.
If there’s anything else that you’re aware of that’s impacting your credit score, address it sooner than later to mitigate the damage.
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