Bad Credit Loan Options
Bad Credit Loan Options
Small businesses with a bad credit history can access financing through other options other than bank loans which might not be feasible. Many options may prove optimal depending on the business’s financial profile and what it is looking for such as startup loans, business acquisition loans, quick loans, and microbusiness loans.
Merchant Cash Advance
A merchant cash advance is advanced as an upfront cash payment based on a company’s sale volume. The credit score is not used by the lender to advance this form of financing. The principal amount advanced is usually repaid over a specified period as a fixed percentage of future card sales. The payments are automatically and directly remitted to the lender.
If your business meets the requirements of being a micro-enterprise, there are microcredit programs provided by micro-lenders and government. The microbusiness loans are smaller and will have less restrictive requirements to get loan approvals.
Business Collateral Loans
Putting up a fixed asset as collateral is one way to bypass low credit scores that may come in the way of getting approval from lenders. The fixed asset will be valued and help the lender gain confidence to approve the loan and know that they can recoup their money in case of default.
The Canada Small Business Financing Program is a government-backed program that was set up to share the risk of loans with lenders. The responsibilities of a lender are providing and administering loans while the SBFP steps in to guarantee a percentage of the loan in the event of default. The SBFP program helps lenders to approve loans for risky credit candidates.
Private loans are given based on an individual’s credit score and are a viable option for businesses that have a bad credit score. The private loans are similar to the conventional term loans in that the cash is advanced upfront. The only difference is that the private loan is repaid daily rather through monthly installments. The daily payments reduce the risk for a lender meaning credit scores are not a factor in the approval process.
Some businesses do not meet credit score requirements to get a revolving line of credit from financial institutions. Alternative lenders present a viable option for the business to get cash quickly and with flexible requirements. One big disadvantage is that alternative lenders charge high rates due to the high risk of cash advanced to a borrower.
Equity Line of Credit
The loan is designed for businesses that have bad credit scores but have equity on the financial statements. The equity is used as collateral for the loan so that the business gets the cash and repay it as per the terms agreed upon. If the borrower defaults, the lender will have a claim on the business and can sell it to recoup the loan amount.