Obtaining a business loan can prove to be a big challenge for businesses with bad credit. If you have a low Paydex score, lenders may doubt your capability to handle repayment and refuse to approve your loan application. Even worse, a denial from a lender can further lower your score by a number of points.
For start-up and new businesses, the owner’s personal credit score will be taken into account. Needless to say, potential lenders are looking for customers with an impressive personal credit standing. If you have a FICO score of 650 or less, you will be considered as a “high risk” borrower and may not get approved for a business loan.
Does this mean you can never get the financing you need for your business if you have bad credit? The fact is that you will need to do extra work to find lending companies that offer bad credit business loans for customers like you. There is a great risk involved considering the fact that predatory lenders do exist in the market and many are out to take advantage of your bad credit situation.
Some lenders may impose excessive interest rates and fees on your loan on account that you have bad credit. Nonetheless, even if you have bad credit, you do not deserve to be treated unfairly. To avoid getting ripped off, you need to be very cautious and carefully evaluate each prospective lender.
Business Cash Advance – Financing for Bad Credit
The great news is that there is an alternative to bad credit business loans. These loans are known as business cash advance or merchant cash advance. This type of financing is a viable option for merchants who accept credit card payments.
With this arrangement, the business owner sells its credit card invoices or account receivables in exchange for a cash advance. Most lenders offer as much as 80% of instant cash advance payment based on the total amount of credit card invoices submitted by the business owner.
In turn, the lending company collects the payments of the account receivables. When all expected receivables have been completely paid, the business owner can receive the remaining 20% from the lender.
This method of unsecured business financing is offered even for businesses with no business credit or bad credit. However, the requirements do vary from one lender to another. Some lenders may accept new or start-up businesses while others may require at least 2 years of operations. The business must also be able to meet the minimum required worth of credit and debit card sales each month.
On the other hand, if you do not accept credit card payments, you may also look for business cash advance lenders who will take in cash invoices or account receivables from non-credit card transactions. Take note that you must choose accounts receivables from your reliable customers only to ensure that they will be able to submit payment to your lender before the given due date. This way, you can eliminate the risk of losses.