Are you concerned that having a low credit score will keep you from getting a small business loan? Stop worrying. You can still get small business loans for bad credit. Because of the emergence of alternative lenders, like First Union Lending, small business owners now have far greater funding options available and more relaxed qualification requirements.
Below, we’ve listed three of the best loan options available for business owners with bad credit.
(Note: Our list purposedly excluded any lines of credit offered by First Union Lending. As of late 2022, small business lenders have increased credit score requirements, which has made it more difficult for borrowers with bad credit to qualify for most lines of credit.)
1. Short-Term Loans
One such choice for your small business is a short-term loan. These can range in length from three months to 18 months. As far as the repayment part of it, lenders like First Union will generally do daily ACH payments (not to include weekends or holidays). Now, keep in mind that because the criteria are somewhat less stringent, the APRs do tend to be higher on these loans.
Unfortunately, getting cash quickly can be an expensive endeavor and cut into your cash flow. However, there are just those times when the need for immediate money is unavoidable. The great thing about a short-term loan is that the process is streamlined, thus easier; some applicants may receive their funds in as little as a day. Not to mention, those lenders will still consider borrowers with lower credit scores.
If you have a credit score over 500, a short-term loan might be something you want to explore further. Because the period of repayment is significantly shorter than with a traditional loan, the lending institution is usually willing to take on a bit more risk.
2. Merchant Cash Advance (MCA)
Another option you may want to consider if you do have bad credit is the merchant cash advance. They can, however, be among the more expensive loan products out there for small businesses. What an MCA entails is a repayment plan based on your daily credit card sales. So, First Union will, in essence, advance you cash which you, in turn, pay in tandem with an associated fee.
Because the terms do center on credit card sales, the amount paid back will correlate with how business is doing at a given time. The better the company is going, the more you will pay back—if things are slow, the amount will be less. As with short-term loans for bad credit, this also can impact your company’s cash flow. If you do not deal with credit card sales, you will not be eligible for this loan product.
3. Invoice Factoring
Invoice factoring is a way for businesses to fund cash flow by selling their invoices to a third party (a factor or factoring company) at a discount. Invoice factoring can be provided by independent finance providers or by banks.
Technically, invoice factoring is not a loan. Rather, you sell your invoices at a discount to a factoring company in exchange for a lump sum of cash. The factoring company then owns the invoices and gets paid when it collects from your customers, typically in 30 to 90 days. Invoice factoring is also known as Debt Factoring, Invoice Finance, and/or Asset-based Lending.
Collateral, credit score, and loan history aren’t major factors in determining your ability to use invoice factoring. Typically, the factoring company will be most concerned with looking at the payment history of your customers because this indicates what kind of risk they’re taking on. Therefore, if your credit score is low or your financial history includes other red flags, invoice factoring still might be a feasible option.
Business Funding Made Easy—Good Credit or Bad Credit
At First Union, we are here to help your company grow—good credit or bad credit. The products we have available are designed to accommodate the way you do business. Don’t hesitate to email or call us at 863-825-5626 to see what we can offer you!