Small businesses are expensive to start. Entrepreneurs and construction companies alike face startup expenses, whether it’s a laptop for a solopreneur or heavy machinery purchased for a construction company. Rent must be paid each month, employees must be paid, and inventory and equipment must be bought.
When your company is young and in need of capital, it can be difficult to access outside funding. A startup business loan can help you bridge the funding gap. And even if your credit score isn’t ideal, you may still qualify for some forms of financing.
What is a startup business loan?
Startup business loans are financing options available to new businesses, i.e., firms that have just started up, as their name suggests. Although the term “startup” is often used to refer to companies in the technology field, lenders offer startup loans to companies of any size. It’s a bit more complicated in reality, however, when it comes to startup business loans. A startup business loan is unlikely to be available to you if you just started your business today.
Lenders generally require applicants to show that their startup business has been operating for at least six months to a year before they can apply for a startup business loan.
Having been in business for at least 6 months does not necessarily mean that you have a full roster of customers or that your doors have been open for half a year. A startup loan can be used for business capital as soon as your business passes this timeframe. The funds can be used for payroll, rent, inventory, or many other expenses. In order to determine what your new business will cost, you should create a business plan. This information can then be communicated as part of your financing application.
Is It Hard to Get a Startup Business Loan With Bad Credit?
It ultimately depends on how low your credit score is that you’ll have trouble qualifying for a startup business loan. You will have a strong chance of getting approved if your score is between 700 and 800. Many startup business loans won’t be approved if your credit score falls below 680. However, invoice factoring may be an option for you if your score is below 680.
Even with a low credit score, meeting other requirements can help you qualify for a startup business loan. In some cases, offering collateral can improve your chances, such as real estate, equipment, or an automobile. Also, if you’re a construction worker starting up your own contracting company, you can improve your chances of approval if you have experience related to the industry.
The best funding strategies are those that don’t require you to apply for a loan if your credit score is really low. Funding for many businesses has come from personal savings, investment from family members, and crowdfunding via platforms like Kickstarter.
Business Loan Options for Startups With Bad Credit
A low credit score doesn’t mean that you can’t obtain a loan to start a business. In terms of startup loans, experts consider SBA-backed loans to be the gold standard. In addition to SBA 7(a) loans and 504 loans, microloans are available as well. Lenders typically require a credit score of 640 or higher when applying for these loans.
Platforms like Lendio offer financing options for startup businesses with amounts ranging from $500 to $700,000. Interest rates are typically no higher than 17%, and repayment periods can last up to 25 years. It usually takes 2 to 4 weeks for your startup to receive funding once it has been approved. Credit scores of at least 680 are usually required for these loans.
Having a low credit score may prevent you from qualifying for these startup business loans. Considering alternatives would be a good idea if that was the case. In the past few years, there have been a growing number of small business financing products that don’t place a high priority on credit scores.
How to Get a Startup Business Loan With Bad Credit
You can apply for a startup business loan if your credit score is at least 680, meaning you qualify for the loan if your score is at least 680.
While meeting the other requirements of the application is best practice, you should also ensure you have been in business for at least six months-and longer is even better.
You can also offer collateral by offering assets. The next step is to draft a solid business plan, which will not only be valuable to lenders, but will also provide guidance for your future endeavors.
It is a good idea to broaden your search to find financing products that do not require a high credit score if you cannot qualify for a startup loan. Many loan applications require lenders to pull your credit history, which means a copy of your credit report is requested. When you apply for funding, your credit score is typically affected negatively. If you don’t think you will qualify, be careful about applying.
What Credit Score Is Needed for Startup Business Loans
In the eyes of lenders, credit scores are like mountains to expert skiers—the higher the score, the better the loan. Whatever your current score is, moving it upwards will likely improve your chances of getting approved. It is still possible to qualify if your credit score is at least 680. But many lenders require a minimum credit score.