Being able to obtain a business loan could make the difference between success and failure for a small business. While more than 50 percent of small business owners in need of a loan target large banking institutions, less than 30 percent succeed in getting them due to poor credit ratings resulting from the economic crisis of several years ago. Today more than ever, it is difficult for small business owners to obtain loans with bad credit, but there is still hope — you just need to know where to look for different types of bad credit business loans.
The Importance of a Good Business Loan
In order to grow your business, you must have access to capital and alternative types of bad credit business loans. That capital can be used to hire new employees, to produce more merchandise, and for marketing and advertising expenses to promote the business. For large, well-established businesses, it is fairly easy to get a business loan from a traditional bank. For small businesses, however, it is a much larger challenge — even when poor credit is not an issue. Fortunately, there are several alternative options for funding that small business owners can take advantage of.
Types of Bad Credit Business Loans
For small businesses that can’t get a bad credit business loan directly from a bank, several alternative types of bad credit business loans exist. These types include merchant cash advance, revenue-based loans, private lenders, and microloans.
- Merchant Cash Advance — If you do not have the capital you need to grow your business, you may be able to obtain a merchant cash advance. This is a type of funding program that offers cash upfront in exchange for a certain portion of the business’ future credit card sales. This option is particularly attractive for small businesses that do a large portion of their sales through credit card transactions.
- Revenue-Based Loans — For small businesses that regularly deposit money into a bank account, revenue-based loans may be the best option in bad credit business loans. This type of loan is issued based on the business’ monthly revenue, and it is typically issued in a small business loan that is equal to 10 percent of the sum of the business’ annual deposits.
- Private Lenders — If traditional bad credit business loans do not work for your business, you may want to seek a private lender. Friends, family, and independent investors may be more willing to invest in your business than a traditional bank or lending institution. Another option is to find a credit partner — someone who has very good credit — to open a business credit card with you.
- Microloans — A new lending source that is becoming popular on the Internet comes in the form of microloans. A microloan is issued from a nonbank lender, typically in amounts between $5,000 and $25,000, especially for those with bad credit.
Getting a small business loan to provide the capital you need to grow your business can be a challenge, especially when you have poor credit. Fortunately, bad credit business loans are available in a number of different forms — you just have to pick the one that is right for you and your business.