How to Get a Startup Business Loan With Bad Credit
Are you planning to start a new business, but your capital is not enough? You’re probably thinking of getting a startup business loan as a solution. In case you aren’t familiar yet of this, a startup business loan is a type of financing that aims to fund new companies with little or no business history.
While this is a good idea, this type of loan is more complicated than a regular small business loan. As per Charles Green, founder of the Small Business Finance Institute, “Nobody does a good job of providing financing to startup businesses because it’s the highest risk out there. You may have big ideas and plans in place, but you haven’t launched yet.” Banks deny startup loans primarily due to lack of experience, lack of management, and lack of customer base of new businesses.
It’s a known fact that banks and lending institutions check out every potential borrower’s credit scores to help them determine whom they should entrust their “money”. They usually rely on the FICO scoring system, which is one of the most popular, as it combines financial data collected from three major credit bureaus: TransUnion, Experian, and Equifax.
Since almost all financial institutions depend on credit scores to evaluate a person’s financial wealth and his/her ability to make on-time repayments, there’s no doubt that it’s really challenging how to convince these lenders to grant a personal/business loan to someone who has a low or negative credit score. Based on the experiences of others, these lenders can either reject your application or grant you a loan but with a much higher interest rate.
While people with bad credit scores are considered “high-risk” borrowers, there are still other non-bank lenders who are willing to give them the “benefit of the doubt”. They are quite lenient with their credit score requirements as they consider other factors such as online accounts and bank account history.
I’d like to quote what Ronald Benitez, a private institutional investor, had said: “Having good credit makes it easier for a startup to receive funding because it opens up the traditional avenues of financing like a local bank or lender.” However, he adds, “the key for any startup to receive funding really lies in their vision and value proposition. I have worked with several business owners who have had bad credit but still received funding.”
Do not let your low credit score hold you back from getting your startup capital. The whole process may not be easy, but always remember that “if there’s a will, there’s a way.” All you need to do is to have more patience in searching for alternative lending options (such as online loans, personal loans, and merchant cash advances) that do not focus solely on credit score requirement.
