Unfortunately, having a good idea isn’t enough to launch a business. While widespread internet access means the barriers to entry are much lower than they were in previous decades, you still need some amount of money to get your business off the ground. And while it may seem impossible to get started with bad credit, the good news is that alternative options do exist.
5 Alternative Sources of Financing
Before discussing some of the alternative sources of financing you may consider pursuing, let’s start by discussing the real issue: your bad credit. If you want to stand any chance of being a successful entrepreneur and business owner in the long run, you need to improve your credit score. Aside from practicing smart credit behaviors, you may also want to contact a few legitimate credit repair companies to see if they can help by accelerating the process.
Once you have a plan for improving your credit score and getting your finances back in order, you can turn your attention towards alternative financing options. Here are a few to think about:
- Angels and VC’s
If you’re willing to give up equity in your business and could use a little bit of guidance in addition to capital, angel investors and venture capitalists may be options worth pursuing. Because their goal is to increase the value of the company and get a return on their investment – not reimbursement for a loan – bad credit is irrelevant.
Whereas traditional lending involves a large organization, like a bank or credit union, giving money to a business to fund growth or pay for expenses, a microloan involves peer-to-peer sharing. A person acts as the bank and gives out a loan to a business in return for a higher than normal interest rate. These loans are often extended in situations where access to capital is limited. For example, some microlenders specialize in giving minorities loans, while others work with entrepreneurs and small business owners in third world countries.
While technically a subcategory of microlending, we’ll give crowdfunding its own distinct heading. Crowdfunding is the same as a microloan in the sense that it bypasses banks and credit unions, but different in the sense that it aggregates money from hundreds or thousands of different people. This community effort often leads to extremely high sums of money, with no equity or loan repayment involved.
- Purchase Order Financing
“Purchase order financing involves one company paying the supplier of another company, for goods that have been ordered to fulfill a job for a customer,” Pargon Financial Group explains. “This is an advance and may not be for the entire amount of the supplies, but it will cover a large portion of it. In some cases, companies can qualify for 100% financing.”
While not exactly an option for starting a business, purchase order financing can be helpful when it comes to sustaining business growth amidst cash flow difficulties.
If your business is an area that focuses on science or research, you may qualify for a grant from the Small Business Administration (SBA) or a government entity. Grants are awesome because they aren’t loans – meaning you don’t have to repay – and they don’t force you to give up any equity. All you have to do is spend the money according to the specifics outlined in the grant. While the application process can be exhausting, there aren’t many downsides or risks associated with grants.
Don’t Let Bad Credit Hold You Back
Bad credit can hold you back if you aren’t careful. When it comes to attracting lenders, you have to prove that you’re a responsible steward of money. If you aren’t, then your opportunities will be limited. Now’s the time to do something about it.