Unsecured business loans with bad credit
Bad credit can do more than raise interest rates. It influences your ability to borrow money, which means your business may not have the resources to take advantage of opportunities for growth and development. It all boils down to your credit score, or a numerical estimate of how likely you are to pay off your debts. These days, it’s something you can’t ignore. It’s important that new companies understand that our financial system is very reliant on credit ratings.
Business scores, like personal credit scores, are based on several key factors in your credit history:
1. Payments (35 percent of score): Whether you’ve paid back previous loans completely and on schedule.
2. Amount owed (30 percent): Lenders may see excessive borrowing as risky.
3. Length of history (15 percent): The more experience you have with successfully managing debts, the better.
4. Type of credit (10 percent): The kinds of debt you currently have, such as credit cards, mortgages, merchant accounts, etc.
5. New Credit (10 percent): Applying for credit frequently is a sign of heightened risk and can lower your score.
The majority of businesses in search of funding turn first to commercial banks. However, securing a bank loan with less than excellent credit is only successful for about 27 percent of business applicants. Little or bad credit history is a common problem for many small business owners, and even for larger companies who experienced setbacks several years ago in the Great Recession. Even for small businesses with moderate-to-good credit, it’s harder to get bank loans because they simply don’t have the financial background to meet strict loan terms.
A lack of capital is the major obstacle to businesses looking to improve their operations. With a timely influx of cash, growing companies can hire new talent, build up inventory, upgrade technologies, or launch a bold marketing campaign. Fortunately, there are alternatives for business owners missing out due to poor credit.
Today there are a range of choices outside of the traditional bank loan process. Business owners may obtain unsecured business financing or lines of credit through alternative lenders even with low credit scores. These lenders will also consider factors such as bank deposit history, credit partners, outstanding invoices, credit card sales, and other sources of business data.
Here are some alternatives that will help you fund your business plans even with bad credit:
A company that has been making steady cash deposits can be said to have a good cash flow. This is the principle guideline for revenue-based lenders. They will look at the deposits made on a month-by-month basis to determine how much money you can safely pay back, usually only about 10 percent of annual gross receipts. It typically involves higher interest rates and shorter repayment terms, but the loan is usually approved fairly quickly, and it requires no collateral or detailed financial information. Payments are made daily via ACH from your business account.
Credit Card Sales
This is a type of merchant cash advance where you can collect an upfront sum that’s repaid as a deduction from your future credit card sales. This can also work with outstanding invoices. For companies have poor credit scores but healthy revenue, a merchant cash advance can be a good way to get quick cash. However, most MCA companies take a healthy percentage, which could be anywhere from four percent to 38 percent. For invoices, this is their one time fee, but for credit card sales it comes out of each day’s receipts until the advance is paid back. Some MCA lenders may also provide regular monthly installment plans.
One way to overcome bad credit is to use one or more business partners with strong credit scores to obtain credit cards. They act as co-signers on the application. This puts their own credit scores at risk, but it won’t reflect negatively on them unless the account goes into default. If you really need the credit, it might be worth bringing a willing co-signer on board into some aspect of the business, though they will most likely expect a percentage or other form of return.
Applying for Unsecured Business Loans
Alternative funding that requires no collateral are unsecured loans, and are generally much easier to obtain than standard bank or even SBA loans. These lenders charge slightly higher interest rates, but won’t ask for extensive documentation such as itemized assets or tax records.
Approach potential lenders and enquire about the loan terms, amounts, and payment schedules for their various products. If one sounds promising, take home an application and put together the documentation. Before filing anything, decide which is the best option for your situation.
Consider applying for unsecured credit as part of a total refinancing plan which might include other options like MCA or personal loans. You can save money on interest by focusing on lower-interest sources for larger, long-term debts, including startup costs or significant build-out expenses. Use higher-interest loans to pay for short term financing and quick returns, such as excess inventory or scale-up for a large contract. Wherever possible, you can transfer your balance from unsecured business financing to secured financing to save on interest and finance charges.
A Flexible Solution
If credit is a problem, it doesn’t matter whether your company is a startup or a company with years of experience in your industry – you’re going to need capital. GoKapital can work with your SMB online. Our experienced staff can help you find the right lending programs for your needs. We provide a fast, free, and easy application process that can get you approved by one of our lenders specializing in small business loans.
Through GoKapital, you only have to answer some basic questions on your business and financial needs. Call us at 1-866-257-2973 to find out how you can be instantly approved for a range of finance programs, or contact us through our online chat using this keyword: easy business loans.