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How to Finance a Business With Bad Credit

Published By Janet Gershen-Siegel at October 16th, 2017

Got a Business with Bad Credit? Here’s How to Finance It

Trying to fund a business with bad credit is an issue. There’s no refuting that. But it is not an overwhelming one. You can get credit for your small business even though your credit score is a stinker. Business financing bad credit is possible!

Fund a Business with Bad Credit: Personal Guarantees

One way how to get business loan with bad credit is by granting a personal guarantee.  This personal guarantee can come from you, but it can also come from an investor. If a family member (your semi-rich uncle, for instance) would like to have a chunk of your new business, why not offer a chunk for them granting a personal guarantee to a lending institution or credit issuer?

Personal guarantees do come along with a degree of risk. If your business does not succeed, then your investor could be left holding the bag if you default on loans etc. Subsequently, asking somebody to provide a personal guarantee for you is not something which either of you should take lightly. But sometimes it’s the only way to get business loan. Because for the lender, a bad credit business loan is risky.

Fund a Business with Bad Credit: UCC Blanket Liens

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Without having a personal guarantee, some loan providers will take out a UCC blanket lien on your firm. A UCC blanket lien is a notification on your credit report. It says the creditor has an economic interest in all your business’s assets up until you pay off a loan in full. As a result, there may be dire results if you need to default.

Consider it from the lender’s perspective. A small business loan with bad credit is risky. If you allow a lien, your bank could be where to get a business loan with bad credit.

Likewise, for truly bad credit risks, your creditor might demand both a UCC blanket lien and a personal guarantee. Still, this can be a way how to apply for a business loan with bad credit.

Fund a Business with Bad Credit: Unsecured Credit

It can be hard to get bad credit small business loans.

A better alternative is unsecured credit. Unsecured just means you are getting credit without putting down any cash (with secured credit, you put down a certain sum and can only borrow up to that sum).

So, how do you get unsecured credit? You get it by putting up collateral for your loan. Don’t feel you’ve got enough for collateral? Reconsider. You may have any range of assets which could be used as collateral for a business loan. So it’s another way how to get a small business loan with bad credit.

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Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business.

Fund a Business with Bad Credit: Personal Assets

Can’t get a business loan with bad credit? Then try something else to get business loan bad credit.

You might have a retirement fund, like a 401 (k). Or your semi-rich uncle might give you (or will to you) stocks or bonds. You may own your own dwelling.

Each of these assets may be used as collateral for a secured small business loan for bad credit or any other form of secured credit. As with personal guarantees, consider this option carefully as a default could cost you, big time.

While these may feel like easy business loans for bad credit, they have consequences.

Fund a Business with Bad Credit: Anticipated Company Assets

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You may also use your anticipated profits as collateral. Let’s say your business has owed invoices out to your clients. You may have given generous payment terms in order to sweeten a deal and get the sale. Or maybe your customer is just plain late paying you back.

With accounts receivable factoring, you can get up to 90% of your uncollected receivables. Even so, you must be in business for at the very least a year and the receivables need to be with some other business (e. g. not with an individual).

It’s a way to get business loans bad credit.

Fund a Business with Bad Credit: Current Company Assets

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Your organization may also have properties which you could use as collateral.

Real Estate

Company assets can include landholdings. Does your business own land, or a building, or part of a building? You can use this real estate as collateral for business loans for poor credit.

Equipment

It can also mean equipment, if you own it free and clear, although this has to be major equipment. You won’t be able to put together a bunch of smaller equipment.

This is called an equipment sale leaseback. As a result, you are essentially selling your equipment to the lender. And then you are renting it back from them for the cost of your loan for business with bad credit payments.

Stock

How about business stock? You can use inventory valued at $500,000 or more and use it for a line of credit worth 50% of your inventory’s value for what’s called inventory financing. In other words, the loan to value, also known as the cost, is 50%. It’s a way to get small business loans bad credit.

Fund a Business with Bad Credit: Angel Investors

Angel investments in your business can be a way to bypass trying to get startup business loans.

Let’s get back to your semi-rich uncle. You may have heard the term ‘angel investor’, in particular if you have ever wanted to finance a play or you just go to the theater a lot. The term originally comes from the performing arts. The first angels were investors in shows.

These days, angel investors are investors in any kind of an enterprise. Yes, your mom can be an angel investor! The idea is that you are selling a piece of your business to them, in exchange for a quick, immediate infusion of cash.

There are two types of angel investors: affiliated and unaffiliated.

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Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business.

Affiliated Angel Investors

An affiliated angel investor is just someone who you knew before you asked them for money. They can be your family or your friends. They can also be people you have worked with. A person on the verge of retirement may be looking for a business to invest in. Why not yours?

A Few Caveats

Owning a business with a family member or a friend has the potential to be problematic, so draw up a bill of sale and ownership documents just like you would with anyone else buying a piece of the business.

Plus only you will know how your family or friends will react if the business fails. Decide if the relationship can handle the strain.

And keep in mind that angel investors tend to not buy very big parts of a business. You will most likely retain a controlling interest. In that way, the company’s direction is going to be your choice.

Unaffiliated Angel Investors

Then there are the unaffiliated angel investors. They might be the wealthier people in your town or (as with affiliated angels) maybe someone the cusp of retiring. They can even be people who you connect with online.

How do you connect with unaffiliated angel investors? It’s the same way you meet any new person in the business world. One way is to get an introduction. And another is to network. Yet another method is to go online.

Because you do not know the person well, the relationship is a lot less fraught. Hence if the business tanks, it won’t matter quite so much if the relationship comes to a screeching halt.

But you should always be aware of where your money and your ownership are going. So when you sell a bit of your business to someone you don’t know, be sensible. Get a cashier’s check or the like and get it before or during the transaction where you hand over a piece of the business. Don’t take personal checks!

And if it doesn’t work out, then go back to getting business working capital loans bad credit.

Fund a Business with Bad Credit: Venture Capitalists

This is one way to get out of trying to qualify for start up business loans with bad credit.

Do you have a business which is right on the cusp of becoming something truly groundbreaking? This can be a service such as Uber. Or this can be a product like the GoPro camera. Or it could be an app like WhatsApp.

For all of these, venture capital firms saw what they felt was an excellent investment. And they were right! Hence keep in mind that venture capital firms will not invest in just any company. So unless your laundromat or trucking company is a massive game-changing industry disruptor, venture capital firms are likely not going to throw money at you.

But if your good or service or app really is groundbreaking and game-changing, and you think venture capital could happen, you will need to network to get an introduction to venture capitalists.  And you will have to be proactive as you are asking them for a pretty big thing.

small business loan with bad credit

Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business.

The Details

Venture Capitalists will provide funding in order to help establish new startups, if the VCs think a company has both high-growth and high-risk potential. These usually be fast-growth small businesses with an exit strategy currently in place.

Venture capitalists will commonly plan to recover their investment inside a 3-5 year interval. They will also, often, want to acquire a large portion of a company if not a controlling percent.

Venture capitalists look for a strong management team; a sizeable potential market; and a distinctive service or product with a strong competitive advantage.

They also search for opportunities in industries they have familiarity with, and where they will have the opportunity to own a sizeable percent of the business, so they can influence its direction.

Risks and Rewards

This is due to the fact that the drawbacks for venture capitalists could be disastrous. Venture capitalists can experience considerable losses if their picks flop. It can be as risky as loans for those with bad credit.

Nevertheless, these investors are ordinarily wealthy. They are frequently so well-off that they can afford to take the risks associated with funding new and unproven businesses, as long as they seem to have a good idea and a skilled management team.

As with angel investors, you are selling a piece of your business. Yet in this case, it’s a more substantial transfer of ownership and control. Only you can decide if you are comfortable with this.

If you aren’t, then reconsider small business start up loans. And even if you are, you can still apply for a small business loan with bad credit.

Fund a Business with Bad Credit: Takeaways

It’s possible to get bad credit business loans.

So take into consideration what you and your company possess, or are expecting to own in the near future. You just might have sufficient collateral for an unsecured business line of credit despite the fact that your personal credit is bad.

And there are other options, maybe even government small business loans for bad credit. You can finance a business with bad credit. Just be creative!

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