If you’re a business owner trying to get small business loans, bad credit can stop you from getting the funds you are seeking. Fortunately, there are several options that might get you the capital you need.

How do you know what your credit risk is?

How can you get small business loans for bad credit?

And how do you repair your credit score if you have bad credit?

Is Bad Credit Stopping You from Getting Business Loans

If your credit score is less than stellar, lenders simply aren’t willing to take a risk on a business with bad credit, or if they do, the terms of the business loan could push your business further into debt. For better or worse, your credit score has become your "SAT score" when it comes to financing. If you have a high score, you'll have a pretty easy time getting credit offers from a wide variety of funding sources. If your score is low or nonexistent, however, you won't.

You may find traditional lenders willing to extend business loans for bad credit. However, be aware you may be charged higher interest rates and the terms of the loan contract may vary from loans for businesses with good credit.

Getting a Small Business Loan

Small business owners who have sustained business losses often experience difficulty in obtaining small business loans from a commercial lender. At best their damaged or bad credit often mandates a high collateral requirement. Due to the high risk that is assumed when providing small business loans for an applicant with bad credit, rates will be much higher than those for persons with ‘good’ credit. Approval or turnaround time can also be much longer. Even in the best of conventional circumstances, liquid capital may be procured “too little, too late.” This could put a business further into debt, diminishing both its credit rating, its credibility and even its solvency.

Related Read: Loan Amortization Schedule & Types of amortization

Bad  Credit Small Business Loans

Bad credit is a red flag for lenders. It indicates you’ve either mismanaged your personal finances or fallen on hard times. Either way, lenders see you as higher risk — more likely to miss payments or default on a loan than a borrower with good credit.

Bad credit (defined by FICO as a score of 300 to 629) is one reason loan applications are rejected; the approval rate of business loans from big banks was just 23.3% as of June 2016, according to Biz2Credit. But alternative lenders provide options. They emphasize the strength and operating history of your business rather than your credit. Be sure to carefully compare all of your choices, weighing terms and annual percentage rate.

Is it possible to get a business loan with bad credit?

It very much depends on your circumstances and willingness to use differing forms of security, but it is possible to get a business loan with a bad credit history. It’s always worth speaking to a credit specialist about sourcing finance, especially if your credit file is poor.

Often, businesses that experience financial difficulties would look to take up a finance solution, more often than not, by visiting their bank. However, due to various reasons, the bank is no longer an option for many small firms, let alone business owners with poor credit histories. Because of this, we're starting to see more and more lenders who provide alternative methods of lending.

It's important to remember that with the boom of alternative lending platforms in recent years, more and more lenders provide finance options for businesses with bad credit — meaning the issue is becoming less and less relevant to finance applications.

Here are some ideas for small businessman with low scores faced with funding challenges:

1. Look beyond credit cards and bank loans for financing. Studies show that credit card and bank financing account for just 25 percent of the total funding needs of early-stage entrepreneurs. This statistic should provide you some comfort, because it implies that 75 percent of the money you need can come from other sources that rely less on your credit rating.

While there are credit cards and lending programs designed for individuals with poor credit, these options will typically charge a higher interest rate to compensate for the credit risk posed by a sub-prime borrower. One bank option for those with poor credit scores is a home equity line of credit, though I'd be wary of putting your home on the line to finance a risky early-stage venture.

Related Read: Balloon Loans For Small Business

2. Seek loans from your relatives and friends. Everyone likes the idea of entrepreneurship, which may be why, at some point, more than 50 percent of all business owners get financing help from friends and relatives. Chances are, your relatives and friends want to see you succeed and may be able to help make your business dream a reality. They also may not dwell on your poor credit score because they trust you, or they believe your business concept to be sound. (Banks used to evaluate your character and business conditions the way family and friends still do, but credit scoring models have made lending decisions more automated, resulting in the critical power your credit score holds over you.)

If you follow the advice I have shared in previous columns on identifying private lenders and understanding their risk profile , you should be able to get access to cheap, quick and patient business capital. Also, you can now use private loans from relatives, friends and business associates to rebuild your credit score if you use a loan management company to service the loan and report payments to credit bureaus.

3. Investigate microlenders and web-based lenders. There are several nonbank lenders on the internet that now offer microloans to entrepreneurs. These loans are typically in the $5,000 to $25,000 range. Some of these sites are excellent sources of capital for those with poor credit and will also report your payments to credit bureaus which can help raise your credit score if you make timely payments. Be sure to shop around and compare rates since each site offers a twist on how they price loans and spread risk to their lenders/investors. These sites include:

• http://us.accion.org/
• www.prosper.com
• www.zopa.com
• www.count-me-in.org (for women business owners)
• www.americaonefunding.com

Related Read: Small business loans for minorities with bad credit

Can I get a business loan with bad credit?

Because these alternative lenders provide tailored small business loans, more businesses are now able to access finance solutions by using different forms of security.

Turnover Loan

If you have a strong credit score and a business operating at a healthy turnover, even with a history of past issues you could still be eligible for a loan based on your business’s turnover.

Asset Finance

For businesses that are asset-rich and cash-poor, there's a high probability that lenders are willing to take equipment, vehicles, or commercial property as security. This guarantees them a lower-risk investment, as they're more focused on the security available than anything else.

Invoice Finance

Usually in the form of invoice factoring, some lenders will look past credit history and financial issues if the business being operated is functioning well and has debt owed to it in the form of invoices. With many variables, it's worth speaking to a specialist about invoice finance. If your business is suitable, it could be a useful solution that not only serves as an alternative way of sourcing finance, but helps you secure a more efficient income by fast-tracking invoice payments.

Here is a list of 20 alternative lenders and a summary of what each company claims to offer.

When your business is just getting off the ground, it’s often just you and your partners burning both the midnight oil and the candle at both ends. Once you’re going somewhere, it can be a great learning experience to handle all components of business operations — but eventually, you’re going to need help.

As your startup gets bigger and you start to bring on team members, it’s important to think about not only the kind of person you’re hiring, but also the role they’ll play in your growing business. You may think that with increasing interest in your product or service, you’ll need to hire more and more salespeople, but salespeople don’t grow businesses alone.

You’ll need a support system built on highly specialized expertise that you may only get through hiring outside professionals.

Here are five people with the skills you need to help you grow your business:

PR/Marketing

The time comes when you can’t rely on word of mouth alone to market your business. You also can’t depend on the banner ads or email blasts you’ve been doing yourself, on top of everything else you have to do.

You’ll likely need marketing help, especially if you’re a consumer-facing company trying to grow your brand. A marketing professional will not only have the skills to carry out your marketing plan, but they will also have the know-how to develop a marketing strategy that looks at the long term.

Depending on what your business does, it may be helpful to hire a press or public relations professional. Companies looking to increase their standing in their industries or expose themselves to new potential partners and clients will likely want to get their name out to news outlets, trade publications and conferences — all of which are in a PR rep’s rolodex. Finding a marketing professional specific to your industry will increase your exposure immensely, and they’ll be able to find you opportunities in places you never thought to look.

Payroll/Human Resources

When it was just one or two of you, handling payroll and any other human resources tasks was likely no big deal. However, as your business grows, so will the responsibility when it comes to background checks, tax forms, payroll and benefits.

Take all of that off your plate, and avoid a mutiny over late paychecks, by hiring someone to do HR or payroll for you. These days, you can outsource human resources and payroll easily — saving you time and worry about employee procedures being done right, like employee onboarding, benefits, taxes and payroll.

Maintenance

Sure, you can break out the vacuum cleaner or the disinfecting spray every once in awhile, and you may even be pretty handy with a screwdriver. When it comes to the big aspects of your business, however, you probably shouldn’t be handling maintenance yourself.

Especially for retailers or other businesses with storefronts, maintaining them can be a big job. Hire an outside company to do any big work on the outside of your building. Things like brick cleaning, concrete restoration, and window repair should be left to the professionals.

IT/ Tech Professionals

Being computer literate these days is a necessity, and the majority of startups wouldn’t even exist without a bit of computer knowledge. However, your small business will inevitably reach the point where even a tech savvy entrepreneur can’t solve a tech issue.

That’s when you bring in the IT professionals. When your team starts to grow, it’s important to have someone there to install new computers, set up the team’s emails and manage the centralization of certain information and data. They’ll have the skills to keep your tech up and running — so you don’t have to waste time hitting CTRL + ALT + DEL and crossing your fingers that it works.

CPA/Financial Accountant

Sometimes hiring an accountant goes along with hiring a human resources professional, but it doesn’t always. Small businesses and solo entrepreneurs can usually get away with using simplified versions of the accounting process in certain software systems.

Once your business does start to increase in size, though, your billing gets more expansive, and the books aren’t so easy to do yourself. As the owner of your startup or small business, you need to hire an accountant you trust and who will make sure you need to be involved in as little of the day-to-day invoicing and bookkeeping as possible.

Good accountants don’t come cheap, but the time you’ll save yourself, along with their know-how, is worth it.

We all want to be a Jack-of-All-Trades, especially when it comes to a small business or startup that’s close to our hearts. Even the best of us, however, eventually reach the tipping point between ‘Jack-of-All-Trades’ and ‘Master-of-None.’ When we do, it’s time to call in these rock-star specialists to help.

Republished by permission. Original here.

Interview Photo via Shutterstock

This article, "Here Are 5 People You’ll Need to Hire from the Start" was first published on Small Business Trends

When small business owners are looking to get business financing, they might wonder about the differences between a line of credit vs. a term loan. If you need detailed answers to question like that or If you are researching various small business loans options best suited for your business in 2016, get started by visiting Specfinance.com. For More encyclopedic info on small business financing read our Small Business Blog.

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