If your business has bad credit, you may struggle to secure financing for it. Lenders will typically check businesses’ credit when determining whether to approve or reject their applications for a business loan. Businesses with good credit are more likely to get approved for a loan than those with bad credit. Even if your business has bad credit, though, there are still financing options available for it. Below are five financing solutions for businesses with bad credit.
#1) Accounts Receivable Financing
Accounts receivable financing is a financing solution that doesn’t require stellar credit. As the name suggests, it involves the use of accounts receivable. Consisting of unpaid invoices, you can use your business’s accounts receivable to secure financing. Accounts receivable financing is essentially a type of loan that’s backed by accounts receivable as collateral.
Another accounts receivable-based financing solution is factoring. The terms “accounts receivable financing” and “factoring” are often used interchangeably. However, they aren’t the same. Accounts receivable financing is a loan that’s backed by unpaid invoices as collateral. Factoring is a financing solution in which a business sells its unpaid invoices to a third party. With factoring, you can sell these invoices for up to 90% of their face value. Even if your business has bad credit, you can still finance it with factoring.
#3) Merchant Cash Advance
A merchant cash advance is an option to consider if your business has bad credit. It involves a bank or lender forwarding money to a business based on the business’s future credit card and debit card sales. If your business processes a lot of credit card and debit card sales, you can leverage a merchant cash advance to secure financing for it.
#4) Secured Line of Credit
Many businesses with bad credit use a secured line of credit. A line of credit is a revolving credit account from which you can draw capital. Unlike with loans, it doesn’t consist of a fixed amount. Rather, lines of credit have a maximum limit, and you can continue to draw capital from them as long you stay within this limit. Secured lines of credit are the same; the only difference is that they are backed by some type of collateral.
#5) Loan With Personal Guarantee
If your business has bad credit, you may want to consider a loan with a personal guarantee. A personal guarantee is a pledge to repay a business loan using your own personal assets. Without it, lenders may reject your business’s application for a loan if your business has bad credit.
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