Financing business plans and new startup ideas are always a challenging endeavor. Regardless of the economic climate and your financial wellbeing, financing comes with a string of challenges. You may be looking to fund a startup, or perhaps, expand your existing business. Perhaps, you need some cash to glide through tough times or damaged shipments.
It is important to note that aside from your own wealth and savings, securing funding can be challenging and tough. If you are looking for bad credit business loans, your journey is even tougher and laced with challenges. Luckily, research and information can help pave the way to make your journey smoother and advantageous.
It is important to shop around for options and explore all financing opportunities like bad credit business loans. Financing a startup or an existing business requires meticulous attention to research. And more importantly, you need to restore your financial health and work on improving your credit scores. In this article, we will walk you through a comprehensive financing guide for your business.
Here’s everything you need to know:
Bad Credit? Explore your Options
Entrepreneurs are conditioned to believe that bad credit business loans lead to challenging situations and disappointments. That can be true, depending on which financing opportunities you seek to avail. If you have a bad credit history, you can still apply for a small business loan or financing. The loan terms and repayment process may get a little inflexible, but it is entirely possible.
You see, small business loans are different from auto loans and home mortgage loans. Many lenders might hesitate from funding your loan if you have a bad credit history. But there are many other options available for you. The money lending industry is actively and fast expanding, and you need to shop around to identify all your opportunities.
You can take out short-term loans with a quick funding process and a short-term repayment commitment. The business line of credit is another lucrative opportunity to obtain working capital for your day-to-day operations. All your unpaid invoices are another medium of satisfying your funding needs. You can take out equipment financing assistance to pay for new equipment or vehicles.
Merchant cash advance presents another opportunity for businesses who are pulling in substantial revenues despite having a bad credit history. However, all things aside, it is important to work on improving your credit history and score.
Factoring
Factoring is another option available to businesses with a bad credit history. It basically involves the selling of all your account receivables at a discounted rate for upfront cash. This financing method is extremely common amongst retail outlets and clothing manufacturers. All businesses that provide larger orders before getting paid can take benefit of factoring to raise quick cash.
However, it is important to note that factoring is an expensive option for raising money. Business who sell their receivables tends to pay a fee that is typically a percentage of the total amount. For instance, a 2% fee to obtain cash 30 days in advance amounts to 24% of a yearly interest rate. This is primarily why factoring enjoys such a tarnished reputation and is rarely considered by businesses.
Receivable Exchange is a newer medium that has made factoring more feasible. The market has become more competitive and volatile. It basically allows businesses to attract multiple factoring businesses with their receivables. These companies include banks, financial institutions, hedge funds and more. The interested factoring companies will bid on your receivables. You can sell them in a package, or one at a time. It is considered a lucrative medium of securing immediate funding for businesses with a bad credit history.
Bank Loans
Applying for a bank loan can be a challenging ordeal, if not a disappointing one. Your eligibility to secure a loan depends on your credit ranking and scores, financial history and overall wellbeing. Your credit scores and business plan will determine your risk gearing ability and whether you are a confident candidate.
Lending rules and regulations have gotten much stricter and challenging over the years. But luckily, there are several small business funding schemes and packages that you can apply for. It is important to identify all programs initiated by banks and lenders to find the right fit for your business.
Credit Card Payments
If your credit score is pitiful and you are already falling behind on some loan payments, your credit card is another option. However, it is important to note that using your credit card to fund your business idea or an existing business is a risky endeavor.
Be sure to keep your payments at a minimum amount and flexible enough to enjoy an easy repayment plan. Or else, you will end up digging up a hole that you will never be able to get out of. Also, be sure to use your credit card with great responsibility and restraint. It can be used to find a way out of a tough situation.
Financing with your Savings
Do you have savings piled up for a dream house, or perhaps, a 401(K)? Your egg nest is the ideal funding source available to you. Instead of piling up liabilities and debt, access the funds you have accumulated in your savings or your 401(K).
Individuals who have accumulated a 401(K) for years have much to rejoice. Luckily, the tax code regulations allow you to access your funds without any penalties. You simply have to follow the rules. The regulations might seem legally ambiguous and complicated, but legal advice will certainly help. You need a professional to help establish a C corporation and chose the right retirement plan.
You can then invest your retirement savings into the right retirement plan. However, bear in mind that you are investing your retirement savings into your business. So, be sure to work out a strategic plan in case things don’t go as planned. After all, you don’t want to lose your nest egg.
Crowdfunding
Crowdfunding has emerged as a lucrative and highly successful avenue to generate funding. From paying for expensive surgeries and funding startups to funding trips around the world. Crowdfunding is an exciting and efficient opportunity to raise funding for your business dreams. You need to start by setting out your goal for raising money over a specific duration of time.
Kickstarter is immensely popular amongst young entrepreneurs and whiz kids. It has funded more than 1000 projects across different industries. You need to rally in your friends and family to pledge money, and strangers will soon follow in. The idea must be inspiring and creative enough to encourage strangers to support and fund your dreams.
Final Word
Financing a business is an overwhelming journey. But arming yourself with research and resources will guide you and pave your way to success. It is important to identify all your opportunities and explore different options to find the right pick.
