How to Get Small Business Finance If Your Credit Isn’t Great
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How to Get Small Business Finance If Your Credit Isn’t Great

Whether it’s for your business or your personal life, it’s hard to avoid at least some reliance on credit. Without access to credit, you won’t be able to buy a home, obtain credit cards or expand your business when the time is right. Used correctly, credit can leverage the power of your small business finance and boost your returns. However, if you overextend yourself, you could damage your business and your ability to gain further credit in the future.

Many small business owners prefer to rely on personal savings or seek funding from friends and family, rather than rely on debt financing. However, it’s unlikely you’ll be able to generate enough funds that way to cover ambitious growth plans. Another option is equity financing – selling a part of your business in return for capital investment. However, as well as reducing your share of profits, you’ll probably have to give up at least some control over business decisions.

There are pros and cons to every small business finance option but many small business owners still opt for debt financing as the quickest and easiest way to fund growth. While fixed-term bank loans may offer the lowest interest rates, they’re also hard to secure, particularly for those with a low business or personal credit score. As well as due to having a poor credit history, business owners may face rejection if they don’t have enough collateral to guarantee the loan or if they haven’t been established long enough to build up a strong credit rating yet. Fortunately, there are many alternatives to bank loans – here are some of the most popular options.

1. Factoring.

This is a simple option for established businesses. If you have an old report or book of receivables, there are lenders who will buy some or all of those receivables at a discount. The lender will check up on the company that owes you money by doing a credit check and making verification calls. If it looks likely that they’ll pay, you’ll qualify for factoring and get your money too.

2. Merchant Cash Advance.

Merchant cash advances are loans calculated on your business’ volume of sales. This volume, together with the business type and any risk factors, will determine the rate you receive. Repayments are not fixed term but tied to your sales – that means you’ll pay less during slow periods and more when business is brisk. With higher rates than other forms of debt financing, Merchant cash advances aren’t a good long-term solution but they’re straightforward to obtain and don’t require security. As such, they can be a good short-term option for businesses with limited credit options. In fact, many use them as a bridging loan to establish creditworthiness before moving on to a longer term, lower rate option.

3. Purchase Order Financing.

PO Financing is a less commonly used small business finance option but it’s suitable if you have a sizeable order from a big customer to deliver. Depending on the size of your business, the manufacturing, labour and shipping costs involved in fulfilling a large order may be enough to sink you. With PO Financing, you can borrow the money in advance to finance the order and maintain your relationship with your valuable customer. The main criterion is that your buyer is creditworthy.

4. Equipment Financing.

This form of debt financing is suitable for both fledgling and longer running businesses. Equipment finance companies will lend you the money you require to purchase necessary but expensive equipment for your business. That might be anything from aircraft to industrial-scale printers, medical or construction equipment and more. Loans are typically based on the ‘auction value’ of the equipment you’re buying. You’ll usually need to provide a sizeable down payment or some form of collateral guarantee – sometimes both are required.

If you’re a small business owner with less-than-ideal credit, these debt financing options can help you obtain the necessary funds to build your business and boost your credit rating in the future.