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Four financing ideas for small businesses with bad credit

You might have decided to start a new business venture that needs hands-on supplementary funding. But, the problem is your credit history. A bad credit score might have reduced your creditworthiness. The first thing that comes to every entrepreneur’s mind is, how are they going to secure funds for their business in such a situation?

A borrower’s personal credit history plays a major role in financing their small business. Apart from this, lenders also examine the potential of the borrower’s business model, their overall experience, and equity investment in the business.

Four financing ideas for small businesses with bad credit

However, when it comes to small business financing, some lenders are willing to be a little more lenient. Here are some creative ways through which lenders can provide supplementary funds, or finance your small business completely:

  • Microloans : These are the most common sources of small business financing for entrepreneurs who are in need of quick cash for their business. Loan amounts offered under microloans may vary from $5000 to $50,000 based on the business module. Microloans are a good way to improve your credit history as it is comparatively easier to pay off these loans. However, the downside of taking microloans is their high-interest rates (which can soar up to 20%). Hence, it is advisable to pay the monthly installments on time.
  • Credit cards : Although not a conventional idea when it comes to small business financing, credit cards can still be a viable option to fund your business. You can use credit cards for cash advances to fund your small business. For instance, you can withdraw $2000 and only pay $20 per month. Credit cards can help generate quick cash flow for your business. But on the flip side, it can set you back on your credit score. If you only pay the minimum sum required to avoid late payments, then you will take a long time to pay off the entire amount.
  • Enter into a partnership : You need to be confident about your business’ success before using this method to finance your small business. Entering into a partnership for small business financing can help you get funds despite having a bad credit score. You could form a partnership with an individual or another small business and use their credit score in exchange for equities and a percentage of shares in your business venture.
  • Peer – to-peer financing : These are unsecured loans provided by lenders directly to their borrowers. The lender decides the loan amount and the interest rates. It is recommended to pick a P2P (peer-to-peer) financer who follows basic financing guidelines and offers customized payment options based on your specific situation.    

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