By now, you likely have realized how important it is to have a high credit score, especially when running a business. A high credit score will unlock more financing opportunities, better funding options, and will give your business a better reputation with venders.
But what happens if you hit a bump in the road, and your credit score is lower than you would like it to be? To be short, it will make business financing decisions more difficult, but don’t panic, there are tons of businesses that make it through having a poor credit history.
There are loads of financing options and capital solutions available to business owners that have bad credit, you just need to know where to find them.
Ditch Traditional Lenders
For years, if you needed a business loan, you had to go through a traditional lender. Traditional lenders (national banks, small banks, credit unions) are great for most businesses, as they offer a variety of lending options for businesses of all sizes. The issue with these traditional lenders is that they tend to have extremely strict requirements necessary to qualify for funding. In the past, if you didn’t qualify for a loan through one of these lenders, there were not too many financing options available elsewhere.
Today, there are a variety of lenders outside of the traditional options for businesses to go to. Online lenders have quickly gained in popularity over the past five years, and as reliance on technology continues, so too will online loan usage.
Online lenders will offer the same business loans that traditional lenders do, but online lenders tend to be more flexible with their loan restrictions. If you do decide to apply for an online business loan, you will need to round up some information about your business, including your credit score, proof of income, and proof that your business has been open for more than six months. When going through a credit-friendly lender, keep in mind that these loans will typically come with slightly higher interest rates than a traditional loan.
If you are interested in applying for an online business loan, but still want a bit more information about the application process, read through our past guide on How to Apply for a Business Loan.
Talk To Family and Friends
While not always ideal, getting financial assistance from your family or close friends can help get your business through difficult times. If it comes down to it and you need to ask someone for a loan, make sure that you do it the right way.
Like anything in life, if you borrow money from a friend instead of a bank, you naturally will feel more relaxed about the whole agreement. This is where too many business owners go wrong. You need to treat one of these personal loans the same way you would treat a business loan from a financial institution.
When going to someone from your personal life for a loan, be sure to ask the right way. Pitch your business just as you would to a bank. Create a deck that details why you need the money and how you plan on repaying your lender. This will show your friends that you are serious about paying them back and will ease any concerns they may have had about lending you money.
Another thing you will want to do when getting a loan from a personal friend is to write up a loan agreement, just as you would with a finance company. Drafting a loan agreement will help you avoid any misunderstandings as you begin to pay back the loan. It is always good to have a certified accountant or lawyer look over the document before finalizing the deal.
A loan from a family member or friend should never be your first choice, but if done right, they can provide you with the funds to keep your business running smoothly.
In 1997, a British rock band, Marillion, ran the first successful form of crowdfunding as we know it today when they raised enough money to fund their reunion tour, all through online donations. Fast forward to today, and there are thousands of crowdfunding campaigns being posted every day.
Crowdfunding is a form of fundraising where a business posts a project that they have online with hopes of receiving donations from anyone who sees the campaign. Crowdfunding is a great way to gain access to funds with no strings attached, but receiving funds is not guaranteed.
While Crowdfunding will be enticing, especially to businesses that have a poor credit history, it can be hard to stand out from the crowd. In 2019, the most popular crowdfunding platform, Kickstarter, had only about 37% of their campaigns receive funding.
If you are interested in running a crowdfunding campaign, there are a few different platforms to go through. The type of funding you are seeking will directly dictate which platform is best for your campaign. Some of the most popular crowdfunding platforms are:
- Kickstarter – The biggest platform for crowdfunding, Kickstarter features campaigns from an array of industries. Kickstarter has an all-or-nothing campaign model, meaning if your goal is not reached, you will not receive any of the funds raised.
- Indiegogo – The second biggest crowdfunding platform, Indiegogo has become a popular option for entrepreneurs as you can choose to receive funds right away, or wait to see if your goal is hit.
- Crowdfunder – Different from the other crowdfunding platforms listed, Crowdfunder allows businesses to sell shares of their business to investors for funds.
Again, crowdfunding is great for businesses that have a great business idea, but relying on crowdfunding can be dangerous.
Improve Your Credit
Moving forward, building your credit profile will only help you run a more successful business. Even though there are financing options for businesses with poor credit, it is best to maintain a high credit rating.
If you believe your credit score is beyond repair, it may be time to hire a financial advisor. Financial advisors will be able to help you identify the weaknesses of your credit portfolio and they will be able to help you quickly raise your score.
Some first steps to take when trying to improve your credit score are:
- Know your score. Before you can improve your score, you need to know what it is. Everyone is entitled to a free credit report from annualcreditreport.com
- Pay any past-due payments. Not paying your bills is the easiest way to plummet your credit score. If you have any debts, make sure you pay them off as soon as possible.
- Keep your credit utilization ratio low. If you can help it, try to pay for things with your debit card instead of a credit card. Overusing your credit card can lower your score.
- Continue learning about credit scores. Credit is an extensive topic that can be difficult to be well-versed in. Luckily, there are loads of credit resources online that will guide you to becoming a credit expert.
If you need financial assistance, but your credit score is too low, do not get discouraged, there are plenty of financial resources available for businesses that have low credit scores.