Entrepreneurs and small businesses need financing to buy equipment and machinery, land, and facilities, for their normal operations, and to start a business. There are different options available depending on the applicant’s personal and business credit score, loan purpose and amount, financial and bank statements, and other factors.
Funding Options
Finance companies and microlenders are two options for borrowers with poor credit. Microlenders are an excellent choice because they report payments to the bureaus and offer loans of up to $35,000. They advertise quick approval, no hidden fees or teaser rates, and competitive fixed rates. Borrowers benefit from no early prepayment fees and personalized quotes. They even offer business calculators to help borrowers decide on the type of loan to apply for. For example, a loan of $15,000 with a 3-year term will cost you $475 in monthly payments. Some peer-to-peer lending platforms also offer women’s small business loans. There are microlenders that offer loans to start-ups in economic empowerment zones, businesses with no or poor credit, and minorities. The lending criteria and requirements are more lenient compared to credit unions and banks. Borrowers can choose from different funding options such as commercial mortgage loans, equipment leases, funding for equipment purchases, cash advances, and business loans. Borrowers with high credit scores are offered excellent rates while applicants with poor credit get higher rates. In addition to unsecured and secured loans, there are government grant programs to consider. Companies in the field of retail commerce, technology, and healthcare usually qualify for grants offered under government programs. Finally, another option is to ask your friends, relatives, or family for a small loan. Studies show that 50 percent of start-up businesses get a loan from friends or relatives.
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Supplier Financing and Traditional Banks
Vendor and supplier financing are also possible sources for borrowers with poor credit. In some cases, suppliers report payments to the bureaus, which helps businesses to build or rebuild credit. Banks and credit unions are yet another option, but traditional lenders look at factors such as length of credit history, payment habits, business structure, and well as public records such as bankruptcies, foreclosure, liens, and judgments. They also consider the borrower’s payment history, revenues, ownership structure, experience, and other factors. Businesses with poor credit are often asked to offer collateral such as equipment, land, real estate, etc.
Business Plan and Documents Required
Depending on the lender and loan amount, applicants are asked to submit documents such as personal and business financial statements, funding application, and franchise agreements. Other documents include copies of statements, office leases, and agreements with customers and suppliers. Business licenses and certificates as well as bank statements are also required. Regardless of your credit score, financial institutions also require a solid business plan that includes a cash flow statement, mission statement, marketing strategies, revenue projections, as well as analysis of your competitors, niche, and company’s weaknesses, strengths, and business opportunities.
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