Startup business loans for people with bad credit can be tough to get in today’s credit market. Before you commit to going down that path, I want to be sure you consider all of the options outside of using credit cards or traditional bank financing for your entrepreneurial venture. In this article, we’ll discuss some alternatives to the traditional loan that may be better for your business.
- Bank loans and credit cards are not what most entrepreneurs use. Recent studies have shown that bank and credit card financing only make up 25% of the total funding used by startup entrepreneurs. That means that 75% of funding does not rely on your credit score to obtain.
- Friends and relatives. It’s never a bad idea to consider going to your friends and family for help. Most times, they’ll want you to succeed and will help if they can. They also know you as a person, not just a credit score, so they’ll be more likely to help you out than a big bank that only sees the score and not the person behind it. Another advantage of going this route is that if you do it correctly you can use these types of private loans to help rebuild your credit score if you set up the loan to be paid through a loan management company who will handle servicing the loan and reporting your timely payments to the credit bureaus.
- Nontraditional lending sources. There are several options online that may be a good fit. These are known as microlenders and web-based lenders. These are non-bank lenders that offer microloans to entrepreneurs. Microloans like these usually range from $5,000 to $25,000 and can be great for those with bad credit. Most of these organizations will also report payments to the credit bureaus which will help your credit score (assuming you pay on time!). Accion.com and Prosper.com are two well-known organizations offering these types of loans. Be aware that the interest rates do tend to be higher than other types of financing, but with poor credit you will be dealing with this regardless of the funding source. You can also search for nonprofit organizations in your city or community that may have programs for entrepreneurs with bad credit.
- Gifts and grants. Don’t forget about the good old government. The infomercial with the guy in the crazy coat talking about government programs was not totally crazy. There are hundreds, if not thousands, of different programs out there. Some focus on specific types of businesses, others on the demographic of the entrepreneur. These can be tricky to locate, but they’re out there! Just be wary of the internet services that promise to find you all the grants you could ever need. Most of them are just trying to make a quick buck off of desperate entrepreneurs. Do the search on your own and thoroughly research what you find and you could find a great program that will work for you.
- Get creative! Look beyond just the money! Other forms of “creative” financing would include gifts from relatives, organizations (or former employers) that may offer free or reduced office space and business services, accounting help, etc.
Hopefully this article has shown you that there is still hope for your entrepreneurial dreams even if your credit isn’t perfect. Look around, do your research and you’ll find great startup business loans for people with bad credit or other financing alternatives.