If you’re a business owner who has bad credit, you should know that FICO scores between 300 and 629 are more common than you think. But many traditional lenders still view these low scores as a sign that you might default on your loan payments. According to the U.S. Small Business Administration, 63 percent of small business owners seek funding from big banks, but only about 27 percent succeed in getting a loan. If you’re a member of the majority who gets rejected, you still have options. There are more and more alternative lending sources available to business owners who have a less-than-great FICO score. There are also many work-arounds that allow you to borrow money or establish lines of credit for your business. Here are some that we recommend.
Merchant Cash Advances
Let’s say your company has regular, reliable credit card sales that make up the bulk of your revenue stream. Despite this steady business, you personally have bad credit. In this case, you’re an ideal candidate for a merchant cash advance. This kind of program gives you upfront cash in exchange for a fixed percentage of your credit card sales. The repayment percentage varies from lender to lender.
Most lenders offer revenue-based loan programs that allow you to borrow roughly 10 percent of your business’ annual gross deposits. The lender will track how much you deposit into your business account and calculate your allowable monthly loan accordingly.
This approach has three significant benefits. First, it usually takes a week or less to get approved and funded. Second, you don’t need to put up collateral. Third, the bank incrementally collects repayment from your account.
Some business owners prefer traditional lenders. If you’re one of them, consider bringing on a business partner to act as a credit partner. This person should have impeccable credit and be willing to take on the risk of co-signing loans and other lines of credit with you.
The Bottom Line
There are a variety of options available to those with challenged credit. Today, many lenders exist solely to offer riskier loans to those with shaky credit histories, and some of these lenders are able to provide game-changing loans that can fix a business's liquidity issues in a short period.