Best Loans for Bad Credit Businesses

With all the borrowing options available, bad credit doesn't need to get in the way of your business.
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Best Loans for Bad Credit Businesses

If you’re a small business with bad credit, it can be difficult to secure financing, especially when many banks will reject loans for small businesses with bad credit outright. It’s understandable that many lenders will see your application as high risk, but be assured there are still good options out there. With the power of the internet on your side, it's easier than ever to secure a business loan, regardless of your credit score. Here are some of our favorite loans for bad credit businesses:

Invoice Financing

A great way to offset a bad credit score is to secure your loan with collateral. If you're a business that invoices your customers for your products and/or services, you can use those invoices as collateral with a kind of financing known as Invoice Financing. The way invoice financing works is that financiers offer you a lump sum worth up to 85% of an outstanding invoice as a cash advance, then, once your customer pays the invoice, they'll pay you the remaining 15%, minus fees.  It’s typical for a financial institution offering invoice financing to charge around 3% as a processing fee, with an additional 1% fee for every week the invoice in question is outstanding.  

It’s fast and easy to apply for invoice financing, as long as you can provide information about your invoices in a timely way. Lenders will also typically request a valid driver’s license, a voided business cheque, your credit score and your bank statements.

Invoice Factoring

Invoice Factoring is similar to invoice financing except that with invoice factoring the job of collecting payments for invoices is delegated to a factoring company rather than being performed by you or your accountant. Depending on the industry your company is based in, this might be seen as totally normal by your customers, but it’s very important to communicate with your customers and clients about the change in your invoice collection if it’s an uncommon occurrence in your field. Some small business owners prefer financing that doesn’t let their customers know that they're in need of financial assistance for fear of how it might affect their image or reputation.

Equipment Financing

If you're a business looking for a loan to purchase new equipment, you can use the equipment you're purchasing as collateral to secure an equipment financing loan. With this type of financing, you're loaned the amount required to purchase the equipment you need, then you pay back that money, plus fees, over a period of time (like a car loan).

Once the loan is paid off completely, you own the equipment. This can make an equipment financing loan a great alternative to renting equipment, since you’re building equity all the while you’re making payments.

What makes equipment financing loans great is that because you’re putting up collateral, lenders are more likely to ignore a low credit score. They feel secure in lending you money because they know they have a way to recoup any losses, in your collateral. It’s really a win-win for both parties, as long as you make your payments on time!

Short-Term Business Loans

Short-term business loans can be great if you’re in need of quick cash, as long as you can pay them back in span of their short terms.

The terms for short-term business loans usually range between 3 months and 1 year in length and are generally paid back with daily ACH payments. Because short-term business loans are fast and easy, particularly when you have bad credit, you can expect to see some expensive APR's associated with these loans, ranging anywhere from 10% all the way up to 99%.  

Because of the added security of automated ACH loan payments, it’s very easy to be approved for a short-term business loan, regardless of credit score, making it one of the easiest loans to get when you have bad credit. Lenders like Kabbage and Fundbox specialize in short-term business loans for borrowers with bad credit.

Merchant Cash Advances (MCAs)

With a merchant cash advance, a lender gives you a lump sum in exchange for a share of your future credit card sales. These remittances are set at a certain percentage of your sales per day, which means that if you have a slow day you’ll pay back less of the loan than on a busy day.

It’s important to be cautious about MCA's; they typically come with high fees, and because they're remitted through your daily sales, they’ll eat away at a big chunk of your profits. Also, you can only qualify for MCA's if you process transactions with credit cards. They certainly aren’t the most ideal option out there, but if you're in need of fast cash, an MCA will do the trick.

Regardless of the of the less than favorable terms, MCA's have become a very popular financing option, and there are a lot of options to choose from. Because they're unregulated, they're riskier than other financing options. Still, approached correctly, MCA's can be every bit as effective as traditional loans in getting your business to where it needs to be.

Regardless of the lender, committing to a business loan is something you’ll want to be careful with, especially if you’re looking to repair your business credit. Being sure you know what you’re getting into is key, and you can do this by comparing lots of different lending options. Talking to an expert is also a good way to be sure that you’re making the right move for your business.

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