If you run a small business but have a poor credit rating, either due to your business’s struggle or your own financial hardships, you know that getting a loan for the next phase of your plan will be difficult.
However, in today’s changing financial landscape, many lenders understand that poor credit happens to more people and businesses, and they are more open than ever to grant small business loans for bad credit.
Different Types of Business Loans
Here is a brief look at the two types of loans that you can shop around for as you seek to boost your business.
Secured Small Business Loans
This type of business loan is easier to come by, obviously, because you are putting something up against the value of the loan. The types of collateral that you can use in obtaining these types of loans can range from inventory to equipment, from property to accounts receivable.
The understanding is that if you are unable to pay the loan back, the lender will take your printing press or office building, for example.
The good news is that the interest rates for these loans are far better than the option described below.
Many times, a business simply needs a cash infusion to get to the next level, so a secured loan might be just what the doctor ordered to set you on the road to prosperity.
Remember the advice given by many moguls: expand when you can, but don’t overreach. If you see the opportunity to set up shop in a second location that is primed for your wares, you need to seize it before the competition does.
Getting a small business loan could make or break your future.
Unsecured Small Business Loans
These type of loans can be considered a form of cash advance for your business. They are often based on your future credit card sales, so only certain types of businesses are eligible for these kinds of loans. You usually have to own a small business that is in the retail sphere, or a restaurant or service-oriented business that accepts credit cards.
You also usually need to provide the prospective lender with six or more months of bank statements, credit card statements and a lease agreement if you have one. This type of loan is only for the desperate. The exorbitant interest rates charged (30+% at times) can easily drain away all profit, so you had better fall into one of three categories when seeking this kind of loan:
a) you have nowhere else to turn for a cash infusion
b) you are sitting on a sure thing and looking to grow rapidly
c) you need a relatively small loan amount
You also want to be very cautious about getting linked with a lender that gives unsecured loans.
Make sure that the institution is legitimate and approved by the Better Business Bureau. There are many sharks out there, but you don’t have to swim with them.
Other Business Loan for Bad Credit
If neither a secured or unsecured loan works for you, or even if you want to avoid an unsecured loan at all costs, consider asking for a loan from friends who don’t care about your bad credit history. If you have friends that believe in you and your business, you can bypass the typical small business loans that are available.
Be sure to put your agreement in writing and don’t be delinquent on payments, or you could lose your friendship and your business.