The small business lending landscape has, without a doubt, improved in recent years. That being said there are still challenges that many businesses and business owners must face, particularly those who are plagued with bad credit. Big bank and other more traditional lenders are simply not willing to take on the risk associated with lending to small businesses with low credit scores.
Small businesses that have poor credit histories and therefore low credit scores typically have valid reasons for why their credit isn’t better. Within the past decade, small businesses were greatly impacted by the recession and the overall economic downturn. When the average Canadian can’t afford to spend as much money, businesses and small businesses in particular suffer. When your business isn’t making enough profit, credit typically becomes your main source of capital to run your business, this in return leads to credit problems.
If you’re looking for a small business loan and have had credit trouble in the past or have no credit history what so ever, fortunately, there are still options for you to get the money you need. Private lenders and smaller financial firms are always more willing to take a chance and help small business owners in need. Below are a few options available to those looking to financially invest more in their businesses but don’t have a high enough credit card score to get a loan from a bank.
Merchant Cash Advance
With a merchant cash advance, you’ll be paid a lump sum in exchange for a percentage of your business’s future credit card sales. Essentially you’ll pay back your lender in very small amounts, using the money you’ve made through customers using their credit cards, every day until you’ve paid your loan off completely.
The great thing about merchant cash advances is that they don’t require collateral or a credit check. They also provide you with extremely quick access to money. Interest rates are typically higher than more traditional small business loans, so make sure you know what you’re getting yourself into before you decide what type of funding is best for your business (click here to learn more about merchant cash advances in Canada).
Business Credit Cards
Small businesses that need access to relatively small amounts of money to pay for daily expenses should consider applying for a business credit card. For those with a poor credit score, your limit may be low and your interest rate may be high. The great thing is that proper use of a credit card will not only allow you to pay for necessities but will help build and improve your businesses credit standing.
Microloans could potentially provide you, as a small business owner, with the financing you need to take your business to the next level. Typically microloan lenders can be found online and are non-profit organizations who work out of major cities in Canada. They are usually more lenient than banks towards borrowers with poor credit. Most microloan lenders tend to focus on working with women and minority business owners but anyone can apply.
Improve Your Credit to Get the Loan you want
While there are lots of great loan options for business owners who don’t want their credit scores to be an issue, having a good credit standing should always be a priority. The good news is there are countless ways for you to improve your business’s credit score while still working towards making your company as successful as you dreamt it would be (want more information on how to get a small business loan? Click here).
Pay Your Bills on Time
Late and missed payments on any of your credit accounts will have a drastically negative effect on your business’s credit score. Do whatever you need to do to always make sure you remember to make your payments on time, set a reminder on your phone or set up automatic payments so you don’t actually need to remember.
The good news is if you’ve missed payments or have made late payments in the past you can correct the negative effect it had on your credit standing, simply start making on-time payments.
Be Cautious with your Credit Cards
While a business credit card can be a great tool, it can also create issues if used irresponsibly. Consider your business credit card a financial tool to help you improve your credit score and help pay for things you absolutely need. Don’t consider it free money that you can spend on whatever you want.
If it’s possible for you to prepay bills then we absolutely think you should. Not only will it make sure you always make your payments on time some vendors may offer discounts if you pay in full upfront or before the due date. Plus having a good relationship with your vendors is always a good idea and may be helpful in the future should you ever experience any financial issues.
Run a Lean and Profitable Business
Obviously, every business owner’s main goal is to be profitable, but it’s not always possible. Work on running a lean business where inventory levels and staff hours remain reasonable and suitable, based on how your business is doing.
Getting The Loan You Need
Gaining access to the capital you need to help run your business can be very difficult, especially for small businesses that have less than great credit scores. Fortunately, there are lots of other options out there, so do your research and find an alternative lender who is willing to work with you to help you get the financing you want and need.