As of October 15, 2015, the approval rate of U.S. business loans from big banks was a paltry 22.8%. If this is an unhappy statistic for small business owners in general, those with bad credit must take it especially hard. After all, even if business is booming, your credit score can still make or break your chances with lenders, right?
The answer: not necessarily. Your credit score will always be important, but internet technology is allowing a growing number of lenders to consider other factors. Bad credit business loan is no longer a contradiction in terms. Many online alternative lenders, as well as some credit unions and banks, are willing to look not only at you, but at the business you run. If your business is healthy, it mitigates some risk implied by your personal credit score.
Let’s take a closer look at a few good funding options for bad credit business loans. (You can find most of these and many more in the Nav Marketplace).
Working capital loans
Credibly is committed to “making sure that you get access to the right-sized capital for your business so you can focus on growing, not just owing.” They offer two different financing options, a small business loan product and merchant cash advance product. Their small business loans range from $5k all the way up to $250k, Credibly has no spending restrictions and you could be approved for a loan within 48 hours of your online application, however their rates can be high, so be sure to calculate your price first.
Requirements: No FICO minimum, 6 months in business, $15k average monthly bank deposits, stable monthly revenue, and must be a U.S.-based business.
BlueVine’s goal is to “help businesses that experience long payment cycles or have lumpy or irregular cash flow to free up their cash,” and supplies immediate advances on outstanding invoices. Bluevine will fund up to 85% of an invoice amount up to $100,00. BlueVine is best for business-to-business (B2B) businesses, so they won’t be a fit for every business.
Requirements: 530 personal credit score, must be a B2B business, U.S.-based businesses with U.S. or Canadian customers.
Small loans (less than $35,000)
Microloans are non-profit organizations that offer smaller loan sizes, which max out around $50,000 but tend to average much less than that. They charge great rates (slightly higher rates than big banks), but have less stringent underwriting criteria. Microlenders will typically mentor you through the application process, which is a big plus. Their goal is to help you build your credit and financial history, so you can eventually qualify for bank funding.
Requirements: varies, but usually for only businesses with less than 5 employees.
Kiva is a non-profit that offers entrepreneurs 0% interest loans up to $10,000. That’s right: 0% interest. Kiva attracts philanthropic-minded lenders who want to help out the small business community. Kiva’s loans “are crowdfunded by a global community of over one million people who can be potential and brand ambassadors to your business.” They boast a 94% success rate, and they report your payment history to Experian Business so you can build your business credit.
Requirements: find a trustee to endorse you, successfully crowdfund on Kiva’s site from a community of philanthropic lenders.
Community Sourced Capital
Community Sourced Capital (CSC) offers access to 0% interest loans from people in your community who know and love your business. Loan amounts are between $5,000 – $50,000. CSC charges a one-time $250 fee to launch your campaign, then a $50 monthly membership fee until you repay the principal amount of the loan. Their main referral source is existing customers, who are ecstatic about CSC’s 90% success rate in helping small business owners find the capital they need.
Requirements: have a connection to people in your community who will loan you money.
Think about cost before you choose a loan
The truth is that while bad credit business loans are more available than ever before, you will often pay higher interest rates and must make larger payments than you would with a better credit score. If you’re considering a loan or cash advance for business owners with bad credit, make sure to calculate your cost with Nav’s calculators to ensure it’s an option you can afford before you accept money from a lender.
Whether or not you take on a bad credit business loan, consider starting to build your personal and business credit now. Building credit is important for a number of ways, including the fact that it will help you next time you need to cover cash flow gaps or you are presented with a growth opportunity.
According to Jeanne Kelley, author of The 90-Day Credit Challenge, a common misconception among small business owners is that “if you have bad credit, you will always have bad credit. They do not even know you can rebuild it.” Nav can help put that misconception to rest permanently, and guide you through the complexities of business financing while getting your personal and business credit into the best shape possible.
Jamison is a writer and researcher based in Salt Lake City, Utah. Along with the intricacies of entrepreneurship and small business, his interests include philosophy, literature and history.