In a perfect world, everyone would all have a great credit score. In turn, this would make obtaining loans from traditional banks a much easier process. Credit scores are arrived at by considering factors such as payment histories on various accounts, types of credit held in the past, length of loan repayment, as well as how much is owed in current debts. These combined factors allow lenders a way to assess how much of a risk any particular person presents.
While a lot goes into understanding a credit score, it’s generally known that higher scores mean lower loan rates. So what happens when it comes time to fund a business venture and you find yourself with a rather unimpressive FICO score?
While this may mean a loan from a traditional lender likely won’t be an option, numerous other routes exist when it comes to funding a startup with less than perfect credit and here are some of these options:
1- Unsecured Lines of Credit
No matter the type of loan or line of credit you end up pursuing, it’s always a good idea to have all of your accounts in order, financial statements ready, as well as tax ID numbers and any other information that’s likely to be requested. The best aspect of opening a business line of credit as opposed to an installment loan is that this allows for the chance to only borrow what’s needed to cover costs as they arise rather than a larger lump-sum.
Startup lines of credit for people with bad credit are available. It’s just a matter of finding the perfect fit for a given situation.
2- Unsecured Personal Loans
Another option when funding a startup is to take out a personal loan even if your credit is on the lower end. Since so many factors go into determining the terms of a personal loan, a customizable approach and one-on-one attention that offers a loan discovery process with a live representative can go a long way to helping you decide on a loan that’s right for you. Such loans don’t require any collateral, and the process is free and done online without an initial credit check.
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3- Crowdfunding and Angel Investors
Two sources of funding becoming more common include crowd funding and angel investors. Successful crowdfunding efforts take a considerable amount of effort to pull off, so it’s to fully assess if this is a worthy approach. A rewards system must generally be put in place, including some sort of offer on the design or pre-order of the product itself.
Angel investors are willing to take high risks with startups, but that also equates to the investor asking for a sizable chunk of equity in the business. This can seem daunting, but various angel networks around the globe are worth looking into.
4- Credit Card Options:
A business credit card can provide a solution to fund startup expenses, and many cards offer no interest deals for a year or more as well as longer payback terms. Also, a cash advance taken out on a credit card is a fast way to secure cash that could be used for partially funding a startup.
This is less than ideal as the interest rates on this type of transaction are high and also come with a fee of three to five percent of the borrowed amount. If your business engages in a minimum number of daily credit card transactions with customers a merchant cash advance loan may be a viable solution.
5- Co-Signers and Collateral
It’s never a good idea to borrow money directly from friends and family as a failed business can result in hurt feelings all around. Yet, an especially trustworthy relative or friend might be willing to cosign on a loan of a more traditional nature if they truly believe in you and are willing to take the financial risk. If a co-signer situation doesn’t sit well with you, various types of collateral loans are an option. For example, a car title loan is a possibility as a way to access quick cash if you own a car outright.
The Bottom Line:
The number of ways to secure the funds needed to get a business up and running are many, and the many options available are not often explored until it becomes apparent more traditional means of lending may not be suitable. With enough diligence and know-how, many less-than-traditional financial solutions abound.
What other options would you add to this list of funding a startup with less than perfect credit?