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Less-than-perfect Credit? How to Get a Business Loan

There’s no getting around it: you’ve got to have money to run a business. Because of that, how to get a business loan is foremost on many entrepreneurs’ minds. It’s not unusual for small business owners to initially think of a bank as a logical choice for needed funds. But if their credit is less than stellar, the most they’re likely to get from a meeting with a banker is a cup of coffee, a pat on the back, and a perfunctory “Good luck!”

It’s tough to get a traditional business loan. But what about those would-be borrowers who don’t quite meet the cut? What other options are available for a business needing cash to:

  • Manage day-to-day expenses
  • Grow the business
  • Have a cushion in case of emergencies

Let’s take a look at some alternative sources for getting a business loan with less-than-perfect credit.

Friends and family

For many, the “how to get a business loan” dilemma is solved by looking no farther than a personal connection. They know you; they believe in you, and they could care less about your FICO score because they’ve seen how hard you work. Some of them might even have read your well-thought-out business plan and recognize the on-going ability of your business to turn a profit. Lending you money that’s currently sitting in a savings account earning next to nothing could also be a plus for them. With the fair rate of interest that they’ll charge you — as spelled out in the contract you all sign – they’ll come out ahead. And so will your business.

But what if the people you know and love aren’t sitting on a whole lot of extra cash? Or what if – as is often the case — you’re just not comfortable with the idea mixing your personal life with your business?

Alternative lenders to the rescue

While alternative online lenders don’t completely ignore credit scores, they take into account a wide variety of additional factors when determining whether or not to do business with a business. And they’re much more likely to focus on things like:

  • Length of time in business
  • Consistency of revenue flow
  • Profitability in the last 2 – 3 years

As some alternative lenders see it, using a FICO score as a deal-breaker eliminates a lot of business owners who might otherwise qualify. And most alternative lenders want to do what they can to make a loan workable – for them and you.

The average APR on a loan from an alternative lender is typically higher than the APR on funds from traditional sources. In general, the APR depends on the lender, the type and amount of the loan, the length of the repayment period, and whether or not collateral is required.

So, if your credit rating isn’t as yet where you (and banks) want it to be, know that there are other possibilities for funding.

*photo by NY Photographic