Has bad credit stood between you and your dreams of being your own boss? Well, it doesn’t have to be this way. These days, having bad credit no longer has to hold you back from borrowing the money you need to start your business, or solve cash flow problems in an existing business.
That’s because traditional banks aren’t the only ones playing the business loan game anymore. Now more than ever, non-traditional loan providers are offering substantial lines of credit to startup business owners and others who need business lines of credit. An unsecured line of credit may be your best option for getting the money you need to start a business. Let’s take a look at some of the options available to startup business owners.
Traditional vs. Non-Traditional Business Lines of Credit
The advantage of a business line of credit over an installment loan is that you have the opportunity to borrow only as much money as you need to get your business off the ground or address temporary cash flow problems, so you’re not stuck paying interest on money you didn’t need to borrow in the first place. A traditional business line of credit is issued by a bank, and most business owners need to furnish quite a lot of paperwork in order to get approved. You’ll need to provide financial details about your business, personal and business tax returns, business registration paperwork, and information about your bank accounts.
Then, once you’ve obtained a traditional business line of credit, you’ll need to submit to an annual financial review in order to keep it. That’s easier said than done for many small businesses. According to the U.S. Small Business Administration, 10 percent of small business owners have their lines of credit called in early and 29 percent have theirs reduced after an annual financial review.
Non-traditional lines of credit include unsecured business credit cards, short-term loans, equipment-backed lines of credit, and invoice-backed lines of credit, all of which are offered by non-traditional lenders. Non-traditional lenders are more willing to offer a bad credit line of credit to a startup business owner with a short business history.
Starting Your Business With a Short-Term Line of Credit
If you’re just starting a business, options like invoice factoring, which lets you borrow money against your outstanding invoices, or equipment-based lending, which lets you borrow money against your equipment, may not be the best fit for your needs, since you may not have invoices yet and you may need the loan in order to buy equipment, among other things. Your best option may be a short-term line of credit.
Alternative lenders like Bluevine, ONDeck, or Funding Circle are often willing to provide short-term loans or lines of credit to new businesses. Interest rates may be higher than they would be for a traditional business loan, and the repayment schedule may be accelerated, but application requirements aren’t as stringent. Loan amounts can range from a few thousand dollars to $1 million, depending on your business’s needs.
Starting Your Business With a Credit Card
Business credit cards are another way to obtain cash quickly to start a business. Just like with a personal credit card, business credit cards let you spend as much or as little money as you need. Many cards carry sufficiently high limits to let you fund some or all of your startup costs, and some cards even offer zero percent APR for the first 12 months.
A business credit card could also give you more time to pay off what you’ve borrowed, easing the pressure of the accelerated repayment schedule that often comes with short-term loans. A business credit card can also protect your personal credit rating, and allow you to keep business and personal expenses completely separated for tax purposes. Both business credit cards and short-term loans allow you to start building a strong business credit rating that will allow you to qualify for better interest rates and more favorable repayment schedules in the future.
You may have bad credit, but that doesn’t mean you can’t get a loan to start your business. Plenty of options are available from non-traditional lenders to help startup business owners get their companies off the ground, even with bad credit. Think outside the box, and make your business dreams a reality today.