Among the many challenges, an entrepreneur needs to face and overcome; finance is undoubtedly the toughest, especially when the credit score is less than ideal. However, just because you have a credit score that you are not proud of, it does not mean that you will have to forget about running a vibrant and profitable business for the lack of funds. A quick look at the viable options in a scenario when commercial banks may be reluctant to extend loans to applicants with bad credit:
Family & Friends
When you step out to establish a business of your own, the very first support usually comes from family and friends as they are the people who really want you to be successful. If your idea is good and you are persuasive, often a large portion of the seed capital can come from them. The good thing about this type of a loan is that they usually come with no strings attached. The interest rate is usually non-existent or very low, and the repayment period flexible. Even if you delay on the repayments, there are no penal charges and threatening phone calls. However, you should be careful about keeping them informed about how your business is doing and repay them at the earliest, otherwise, you run the risk of spoiling relationships.
Online Lending Platforms
Typically, these lenders operate only on the web and promise quick assessment and disbursal with less bureaucracy. Some specialist bad credit lenders are ready to structure loans according to your convenience. You can also look at peer-to-peer lending platforms that give you access to individuals who are looking to invest their money in different ventures. Again, these platforms can get cash relatively more quickly into the system.
Use Credit Cards
Even if bank loans are inaccessible to you due to bad credit, you can freely use your credit cards to buy supplies and other essential business expenses. However, it is best to pay off the entire dues by the statement date; as otherwise, you will need to deal with the very high interest rates. Making only the minimum monthly payment pushes you into a debt trap, which you will find very difficult to get out of, unless, it is only for a short period to put your business on a very high growth trajectory.
Merchant Cash Advances
Many entrepreneurs with bad credit looking for a quick solution to financial jams are taking advantage of merchant cash advances that make funds available to businesses for a portion of the sales in future. Since the rate of interest can be quite high, it should be considered as a short-term solution to the lack of business liquidity.
Just because the banks may have slammed their door on you due to a bad credit profile, you don’t have to despair. There are quite a few options that can be used to access funds that will allow your business to keep operating. You will, however, need to keep a strict watch on costs and repayment schedules.