Per the Small Business Administration (SBA), nearly two-thirds of all small businesses apply for loans annually. What is discouraging, however, is that only slightly more than one quarter of these applications are successful. The number of approvals for those with bad credit is even worse, which should concern a business owner who needs capital for expansion and does not have a great credit history. Considering the likelihood of a traditional business loan or some of the available financing alternatives, most small business owners today will find that bad credit business loans are a good thing.
Problems with less-than-stellar credit
Small business owners nearly always face challenges applying for business loans, and it is not strictly tied to credit history nowadays. For instance, today many large banks are shying away from business loans for less than one million dollars because of the minimal profit on these types of small business loans. A detailed report on business loans shows that it costs nearly the same money for a bank to process a loan for one million dollars as it does for a loan of fifty thousand. So even if you have great credit the likelihood of receiving financing for a small business is really small.
This problem is only exacerbated when you introduce poor credit into the application process. Traditional banks weigh risk when they are making a business loan, which means those who have credit problems will likely face additional scrutiny. There will likely be requests for additional paperwork and background checks that will result in a much longer and drawn out application process that will most likely end in denial.
Avoid credit card loans
Many small business owners will likely seek alternatives to a traditional bank loan. One of these options is a business credit card. The obvious issue is that having a poor credit score is going to limit your credit availability. Another reason this type of financing can be an issue is that credit card providers generally limit the amount of cash that can be taken against the actual credit line. That means that you may not have adequate funds to launch a marketing campaign or fund some type of expansion where cash is essential. Additional negatives with this type of financing are hidden fees, the potential for using the card to purchase unnecessary items, as well as the downward pressure on an already weak credit score.
Microloans are not always a good answer
Microloans can be an option for individuals with less than perfect credit but they are generally for 50,000 or less and are usually established for groups such as minorities, women owned businesses, or for groups or individuals in poor communities. Some of the larger providers offering access to Microloans are GreenAmerica and the SBA. Micro-lending is an unreliable option for most small business owners because the approve amounts are significantly less than 50,000. Accion, a major microloan provider averages about 6,000 per loan. Additionally many lenders have strict criteria for who may be eligible. Considering the limited amount of capital available along with strict criteria for lending Microloans are often not a good option for small business owners.
Borrowing from friends and family
Although borrowing from friends or family can seem like a great alternative considering the limited consequences of default and in most cases and the reasonable interest rates if any, it does have its caveats. Most small business owners do not have rich uncles that can write them a check for the full amount of money required for a business investment, so chances are the amount of capital that can be raised is severely limited. The larger issue is that borrowing money from friends and family can place a strain on an otherwise good relationship. You might develop a sense of obligation or inferiority with that person changing the dynamic of social gatherings, or you might just want to avoid that person entirely until your debts are settled. There are unlimited stories of how borrowing from friends or family killed the relationship. Borrowing the money from someone you know is usually a thought rooted in desperation, and most of the time is never realized for a countless number of reasons.
Bad credit business loans offer the best solution
For most business owners who are concerned about getting the money they need, bad credit business loans are generally the best option. There are several reasons to demonstrate why these types of loans are the best option when put up against traditional business loans, credit card loans, microloans, or the friends and family option. The following points allow you to see that bad credit business loans can be a good thing:
Availability – unlike bank loans or microloans, bad credit business loans are available to almost every business owner. There are no particular group affiliations or demographics required.
Credit Score Concerns – whether you are considering a traditional bank loan or a microloan your credit score will likely determine whether or not any funding will be available for you. That is one of the best features of a bad credit business loan, they are for people with bad credit. The funding is based on your business health so no matter what your credit score is there is likely funding available.
No Funding Caps – another great feature with bad credit business loans is that there are no caps on how much money is available. Whereas microloans are capped for the most part at 50,000 with many programs offering much less, and borrowing from friends and family is almost guaranteed to fall short of the funding target amount, bad credit business loans are offered in amounts as much as 1 million dollars or more.
Credit Pressure – unlike bank loans or credit cards that certainly put negative pressure on your credit scores, bad credit business loans do not put pressure on your credit history. Many of these loans are funded privately so there is a great possibility that no negative pressure will be put on your credit history.
Personal Pressure – unlike a loan from a family member or friend, bad credit business loans do not require that you become a slave to the lender or completely ruin a good relationship. In fact, the entire funding process can take place online so you never have to meet a lender in person.
No Hidden Fees – when you take a loan out for the purposes of rebuilding your credit and funding your business, the last thing you need is unexpected fees. Bad credit business loans provide you with a clear understanding of the expenses involved and there are never any hidden fees – what you see is what you get. Banks and credit cards continue to make a big portion of their profits on many of these fees that are not immediately apparent.
No Strings Attached – banks sometimes put restrictions on how you can use funds you borrow. Credit cards limit amount of cash you can use so a large portion of the credit line might have to be for store purchases only. These restrictions may often mean you are unable to make the necessary investments in your business, negating the purpose of borrowing money in the first place.
Finding the right solution for your business financing needs is important and at Shield Funding we understand business owner’s needs. Our bad credit business loans are a great option when you need capital to grow your business. There are no hidden fees, no funding caps, no credit score requirements, and our programs are available to almost every business owner. More importantly, our relationships are built off of providing capital so you never have to worry about ruining any relationships. Rather than pinning your hopes on traditional financing, friends and family, or applying for a microloan or credit card that might not meet your funding requirements, apply for a bad credit business loan with Shield Funding.
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