Business Loan Options for Those with Bad Credit

Tips on Finding Money for Your Business if Your Credit Score is Holding you Back

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Bad Credit

You need some loan options because you have bad credit and you want to start a business. You want to rebuild your credit score. Your credit score is low. You may even have a bankruptcy on your credit report. But, you have a good idea and you want to start a small business or you need a loan for a small business you already have. What do you do?

4 Business Loan Options

Here are 4 business loan options for those with bad credit to consider:

  1. Home Equity Lines of Credit and Credit Card Financing

    Your business is not going to qualify for a traditional bank loan and there is very little reason to even go there. You have to wait until you can rebuild your credit score. One thing you may be able to do is get a home equity loan if you own your home. If your business is a risky startup venture, you need to think twice and three times before you put your home on the line. If your business is a more mature, stable business, then a home equity loan might be just the thing for you.

    You may be able to get a business credit card, but it may be a secured card with a fairly low line of credit and a fairly high interest rate. In a situation where a business owner is trying to rebuild credit, it is not a bad idea to use a business credit card to re-establish good payment habits with the three major credit bureaus.

  2. Family, Friends, Private Investors

    Statistics show that more than 50% of small businesses get financial help from family and friends at some time. Your credit score is of much less interest to them than it is to a bank. They lend money to you based more on your character than credit score. Banks used to do this as well, but for banks, the credit score has become the only really important variable when loaning money. Talk to your family and friends about your business. Really tell them about it and about your financing needs. See if any of them are interested in either loaning you money or investing in your business.

    The only downside to borrowing from family and friends is that your payment record is not reported to the three national credit bureaus so it won't help in rebuilding your credit.

  1. Alternative Sources of Financing

    Since the beginning of the Great Recession, all kinds of alternative financing for small businesses have been popping up, some of them very good some not so good. If you are an established small business with bad credit, you can use many of them. If you are a startup, some of them are still available to you. Check out peer to peer lending which may be able to help you out if your financing needs are under $25,000. Talk to your financial professionals about your options.

  1. Using Supplier and Vendor Financing

    Your business is going to have to have relationships with suppliers and vendors in order to buy the goods and services you need to operate your business. If your suppliers extend credit to you and report to the three credit bureaus and you are on time with repayment every time, this will help rebuild your credit and give you the supplies you need.

While you are in the process of obtaining your financing, focus on cleaning up your credit report.