5 Funding Options for Startup Business Loans with Bad Credit

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If you are just starting a business and you’ve been made aware that you have a bad credit score, you may be asking yourself this question for quite a while now: Where to find startup business loans?

Most lenders like banks and traditional lending companies usually do a credit check before approving any type of loan, even business loans. In addition, they do not typically cater to start-ups because the minimum business operation requirement is typically 6 months to 1 year. Very few lenders will be willing to offer loans to startups that are operating for under three months. Hence, startup business loans with no credit check are almost impossible.

Business Loans for Startups

Here are some funding options that do not require you be in the business for long, or can provide you with the small business loan even if you have a bad credit:

Crowdfunding

Crowdfunding has become one of the most popular and modern ways of collecting funds for entrepreneurs and business startups that are planning to launch a new product or service. Crowdfunding platforms make it easy to host a campaign online, allowing you to reach potential investors or backers through social media and email. In addition, you can have the advantage of getting the masses’ feedback that can validate and help refine your business concept.

Crowdfunding comes in different types; these are:

Donation-based Crowdfunding

This is the type of crowdfunding that offers no incentive for the “investors” or backers and is typically reserved for community projects, nonprofit organizations, medical bills, and disaster relief.

Rewards-based Crowdfunding

This type of crowdfunding offers investors or backers a reward for funding the business. This reward typically comes in the form of products or services that your business offers. This reward can also be a gift of thank you.

Equity-based Crowdfunding

Equity-based crowdfunding offers a level of security in which the backers become part-owners of your business through equity shares. With this type of crowdfunding, the backers receive a financial return of investment from your company.

Small Business Grants

Small business grants are not similar to business loans. They are awesome in their own way because you don’t have to pay them back. However, it is very difficult to qualify for a business grant.

Local, federal, and state governments offer an array of grants to allow small businesses to grow and develop. But there is a catch. They typically offer these grants to specific government-identified industries and causes like medical and scientific research, conservation efforts, and the like.

Microloans and Nonprofits

If you are a minority owner of a small business or have come from a background that is considered as ‘disadvantaged’, you may qualify for a microloan or nonprofit assistance. In general, these options do not require you to be credit-worthy or to have an excellent credit history. Having a bad credit score or a limited business background won’t hold you back from getting a microloan or nonprofit funding. These lenders are ready to help traditionally marginalized groups and are not after the financial benefits.

As an entrepreneur, you must understand some common myths related to business loans.

Family and Friends

If any other options fail, you can always ask for a loan from your parents, family, or friends. If they believe in you and trust you with your new business, you can ask for their help and tell them to invest in your new business ventures. However, accepting money from family and friends can put them at some kind of risk, so they better be careful in asking for money from them. Moreover, ensure they know where you are putting the money and that they are fully aware of the possible outcome, good or bad. Also, have a good understanding or even a written agreement on this.

Business Credit Cards

If you need the funds right away and you don’t have time to file for a loan application and then wait for the result, you may want to get the funding from a business credit card. While most people do not consider business credit cards as a credible funding option for businesses, they are still ideal for startup businesses. This is because issuers of business credit cards depend on the applicant’s personal credit rating instead of the business’s credentials when deciding whether to approve the loan or not.

It may sound daunting, particularly for a startup owner, but a business credit card is more accessible and flexible.