5 Installment Loans for Bad Credit Business Owners
Published 7:33 am Friday, December 18, 2020
Receiving a loan with bad credit might be a daunting task for many, but not for business owners. Unlike personal loans, business owners have plenty of options to access their credit line in need.
If you also believe that having a not-so-good credit score can limit your ability to apply for a loan, then you may need to rethink.
For business owners, there are a sizable variety of expenses that they need to meet on a daily basis. For example, paying salaries, covering fuel and accommodation costs, and most importantly buying inventory.
However, thanks to our credit system, business owners can find installment loans for bad credit online from private lenders.
If you’re unsure of these loans, we’re here to help. Keep reading to know more.
As the name suggests, these loans are for shorter tenures. And, of course, the value of these terms is also not very high. Usually, these loans extend somewhere from a few hundred dollars to nearly $100,000, depending on your credibility.
Unlike conventional loans, short term business loans usually term for a maximum of 18 months. While conventional loans, on the other hand, may reach maturity in as long as 30 years. Thus making it an appropriate lending option without having to commit for the long term.
The term for short-term loans usually depends on your principal amount and your fundability. To put this into perspective, better fundability criteria would mean higher principle and a longer-term.
Besides, these loans make it apt for almost any business funding needs, from salary payments to inventory costs, and many more.
There are plenty of private lenders who can offer you a short-term business loan. The reason being, there is not enough time to default the loan. And in case, if this happens, there is a lower risk, as the amount for the loan is also small.
Moreover, the lenders usually don’t require any collateral or security to be placed when taking out a short-term loan. Thus, making it a perfect choice for your small business financial needs.
Since these loans are meant for riskier borrowers, there are some caveats. For instance, the installments might have to be paid weekly or daily, instead of paying monthly. Plus, the rate of interest might also be higher.
Business Line of Credit
Quite similar in many aspects to a business credit card, a line of credit can be approved by your withholding bank. On approval, you can withdraw the amount as per your need and pay it back in installments.
A business credit line is perfect for your business’s needs if you have sizable revolving capital needs. For instance, if you own a transportation company, you may need to pay for the fuel costs regularly. And, of course, most of your turnover would be end to end. It means, your income and expenses are regularly being moved around.
As already mentioned a business line of credit is similar to a business credit card, but not in all aspects. Unlike credit cards, you’ll need to repay the debt in weekly or daily installments. Moreover, you’ll first need to pay off the interest.
Your repayment tenure may extend up to 36 months. And when you’ve completely paid off your loan, you’re free to take out more from your line of credit.
Although many lenders may require you to place security or collateral to access a business credit line, it can still be availed of with a bad credit rating.
A business credit line is also apt for bad credit holders, as they can help rebuild a good credit score.
Accounts Receivable Financing
In case you have outstanding invoices, you can convert them into instant capital for your business. Also, known as invoice financing, and accounts receivable financing option uses your unpaid invoices as collateral.
The process goes like this- your lender would pay you somewhere between 70%-90% of your outstanding invoices. Your debtors would pay the invoices to your lender, instead of paying it to you directly.
When your invoices are paid off completely, the rest of the amount would also be credited to your business account.
Unlike other options in this list, accessing invoice financing isn’t as tricky. This is because your unpaid invoices are kept as collateral against your debt. Plus, you’re required to pay additional interest to the lender for the period your invoices remain unpaid.
There’s, however, a catch here. Accessing invoice financing means the lender won’t be looking at your score, but instead on your debtors’ creditworthiness. If you’ve been working with good customers, the chances of receiving an accounts receivable loan are bright.
Another possible way to secure a loan, despite a bad credit score is by placing your equipment as collateral. In fact, equipment financing is one of the most convenient ways when you need to buy a new piece of equipment.
Since these loans are secured with collateral, the lenders do not need to access your credit report at all. But, that also, does not mean that there are no checks at all.
Instead of accessing your credit report, the lenders would generally assess your bank statements and your invoicing value.
In some cases, you can avail of 100% financing, while in others you may need to pay about 10%-20% of your equipment value.
Merchant Cash Advances
Unlike equipment financing and invoice receivables loans, merchant cash advances aren’t exactly loans. But, they are still secured, making these readily available to bad credit holders as well.
When you find an MCA lender, you’ll need to agree to share a portion of your future sales. This agreement ensures that the lender won’t lose money, even if your business has a bad credit history.
Some financial experts also claim these loans to be more similar to VC investments or angel investments.
That being said, availing of a merchant cash advance has little importance for your creditworthiness. Moreover, there is no interest to be paid, but rather a fixed amount. To put this into perspective, paying off your principal for a conventional loan or even a short-term loan would mean a lowering interest rate. Which is not true with merchant cash advances. You’ll need to repay the agreed sum of money to the lender, no matter what.
If you’re still wondering that you cannot access a loan for your small business, we advise you to visit an online money lending network. Consulting with real lenders would clear your doubts for the better, and you can make a better decision in the end.