3 Ways to Get a Small Business Loan with Bad Credit

As a small business owner, you know that it’s tough enough to compete with the large enterprises in your marketplace that have large footprints and deep pockets. But if you need business financing, then what you’ll soon discover — if you haven’t already — is that without outstanding personal and business credit, banks aren’t on your side either. In fact, your loan application won’t even make it past stage one.

Fortunately, you have options to ensure that your business succeeds and thrives. Here are three popular types of business loans for bad credit:

• Working Capital Loans

Working capital loans are like conventional bank loans, but with some notable advantages, including the fact that you don’t have to secure it with collateral, and the application process takes a few days vs. several months. Working capital loans are best suited for long-term investments, such as expanding into new locations, introducing a new business line, acquiring an existing business, and so on.

• Merchant Cash Advances

Merchant cash advances have the same advantages as working capital loans but are geared towards borrowers who conduct most of their transactions through credit card or payment (bank) card, such as restaurants, auto repair shops, and so on. At the end of each day, a small percentage of daily sales is automatically withdrawn and used to pay down the loan.

• Business Line of Credit

Technically, a business line of credit isn’t a loan – but it functions much like one, and so is worth including on the list. Much like a credit card, a business line of credit lets you access a pre-set amount of cash whenever you wish. Also, you’ll only pay interest on the amount you borrow vs. the amount available, so if you don’t use the line of credit, there’s no cost.

• Purchase Order Financing

With this option, you sell one or more purchase orders to a lender, in return for a cash infusion. While each lender has its rules and policies, generally you can expect to get about 70-80 percent of the value of your purchase order(s). When your customer pays the purchase order, the money will be sent directly to the lender, who then keeps the agreed upon among of principal and interest. Any remaining funds are sent to you, but there’s usually not much left over. Because this type of financing is relatively costly and risky, most small business borrowers with bad credit tend to focus on the options described above.

The Bottom Line

Having bad credit doesn’t mean that you can’t raise funds to keep your business alive and growing. If your bank says no, then explore what’s available in the alternative lending market — you’ll likely find the experience rewarding and profitable!

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