It is exciting to start a business, but it can also be stressful. Apart from running the business, you also need to figure out where to get capital. Even though your credit is bad, you may still secure startup loans for small businesses with no collateral. Such loans can help you to establish your business without risking the loss of personal assets.
Yet, small business loans for bad credit usually come with high-interest rates, compensating for the lenders’ risk. Lenders view such startups as less likely to repay loans than established enterprises with better credit. Lenders can use various credit scoring models in evaluating a person’s creditworthiness. Some have minimum credit scores they wish to see in loan applications.
If a startup lacks an established business credit score, lenders can evaluate the applicant’s personal credit history. Regarding individual credit scores, lenders usually consider FICO Scores below 669 either bad or fair. The other scoring model lenders use is Vantage Score. It considers scores ranging from 500 to 600 fair and those between 300 and 499 poor.
Applying for small business loans for startups
To get a loan, the lenders might require you to secure them with certain assets. Other lenders might request a personal guarantee. This means the lender can use your assets to cover the loan if you cannot repay it. The health of your startup might also impact your personal credit.
As you apply, you must read every loan offer carefully to know what you are responsible for. Also, complete some preparation work to strengthen your pitch. For instance, you can present a detailed business plan outlining how you will use the funds and your strategies for success. A business forecast can also give the lender an idea of your expected cash flow in the coming months. You may also provide the lenders with personal information and tax returns.
Options for no collateral startup business loans with bad credit
You can get unsecured business startup loans even with poor credit. Some options available include:
- Online business loans
Online lenders can offer alternative poor credit small business loans with fewer requirements than traditional banks. You may also explore startup loans for groups like women with poor credit. Funding and approval times for online loans can be quick. However, you must offer proof that you can repay the loan. The drawbacks of online business loans include a shorter repayment term and high APRs.
- Credit cards for small enterprises
Credit cards for small businesses can be an alternative for covering early startup expenses. If you have a good personal credit card score, your chances of qualifying are high. Most of these cards also have a required personal guarantee. Many also have a yearly fee. Even though they offer rewards or perks, comparing the costs of using them before applying is essential.
- Equipment financing
This business loan comes in handy for entrepreneurs who want to buy equipment for business purposes. The equipment a borrower purchases acts as the loan’s collateral. Need differ based on a business’s nature. Using this loan, you can buy equipment, including office equipment, agricultural equipment, restaurant ovens, and vehicles. Typically, business owners own the equipment once they pay off the loan.
