Poor Credit Business Financing: Getting Money When Prospects are Slim

Don't let bad credit stop you from obtaining the funding you need.

It may seem strange to realize it at first, but the truth is that in a down economy such as the one we find ourselves in now, you can still get credit, even if your credit isn't perfect. In fact, when the economy is in the situation that it is in now, banks and other lending institutions are more anxious to make business loans than ever. After all, this is how they make money. All it takes is a little out of the box thinking and creativity when you apply for the financing you need.

Think of a good source of ready cash when you need it, and if you are like most people, the first thing that comes to mind are banks. In fact, for more than 63 percent of business owners, banks are the first source of money that they approach when they need it. The down side of this is that less than 27 percent of those who applied for a loan from a bank received it. The fact remains, banks and other financial institutions are chartered to provide economic stimulus to the communities they serve, and their compliance to this requirement is critical to their survival.

Much to the dismay of small business owners and managers, bad credit can still plague your chances of getting business credit or a loan. In these cases, poor credit business financing becomes the issue.

What follows are several options you can exercise to get the cash you need, even with a bad credit score.

1. Look beyond bank loans and credit cards for financing.

Studies have shown that only about a quarter of all funding gathered by entrepreneurs was from bank loans. It naturally follows that 75 percent of the funding that small businesses receive are from sources other than banks, which rely less on credit scores for their evaluations than do others.

Anyone who has enjoyed (or tolerated) an evening of television knows that there are many sources of money for those who have credit problems.

The trouble with these is that they normally charge considerably more for their money than other sources. This is due to the risk they take when loaning money to those with poor credit scores. One source that these businesses frequently offer is a credit line based on your home. Unfortunately, this is often not a good choice, especially on a risky venture that might be in the early stages.

2. Seek loans from friends and relatives. More than 50 percent of first time entrepreneurs get their financing from friends and relatives. This is because there are probably very few things that are as exciting as being in on the ground floor of a business opportunity. Further, these are the people who most likely trust your business sense and judgment, and even your product or service. In fact, there's every reason to believe that most of these folks won't even consider your credit when making a decision.

3. Look into web-based lenders and microlenders. These sources tend to lend less money--from $5,000 to $25,000--but they also rely less on credit scores than others. It is also important to note that these sources also report your payment history to the reporting agencies, so if you end up paying on time and within the agreed upon terms, this source can actually end up helping you to improve your credit rating.

4. Remember gifts and grants. It might seem strange to some, but there are private as well as government organizations that are in business to give people like you money. This should not be considered "free money" and sometimes there are considerable strings attached to these funds, but they are available. Loans that might be obtained could rely on you opening your business in an "economically disadvantaged" area or on hiring members of groups that are disadvantaged. If these stipulations are agreeable to you, you might want to look into them.

If you want to start or continue funding your business, but you have credit problems, all is not lost. It might be more difficult to get the funding you need from traditional sources, but poor credit business financing is there if you look for it.