There are Several Options For Business Loans If Credit Quality is a Concern
Credit sure seems to make the world go around. Those with stellar credit files have an easier time qualifying for loans and often enjoy lower interest rates, better repayment terms, and the ability to qualify for more money than those without. Those with challenged credit often face turndown letters, high interest rates, and limited access to the funds that they really need to help solve a short or long-term financial predicament.
Business loans for bad credit include unsecured or secured lines of credit (tough to get!), or asset-based loans. Here is a quick overview of the good and bad of each type of loan as mentioned above:
Bad Credit Business Loans – Which is the Right One For Your Business?
Unsecured and Secured Lines Of Credit
Unsecured and secured lines of credit are truly difficult to obtain if credit is an issue. Unsecured loans and lines of credit do not require collateral, so the lender takes all of the risk in the transaction. This can lead to strict underwriting guidelines and low approval rates. Also, interest rates on unsecured loans can be high due to the inherent risk involved. Secured business loans are easier to obtain and have more favorable fees and rates, but a business must have substantial assets in order to qualify. Many organizations simply cannot qualify.
The last type of business loan that is truly tailored for those with bad credit is the asset-based loan. These loans utilize the power of your daily credit card settlements to pay back the loan. Basically, a lender will analyze how much your company has billed over the previous few months and forecast your upcoming sales. This amount will be factored into a loan amount, the funds will be disbursed, and then the repayment period begins. The payments are made in small daily increments and are based on the amount of each day’s merchant settlements via the credit card processing terminal. This allows for a lower payment during slower days and more aggressive payments when business is good.
For many, asset-based lending is the answer for obtaining a bad credit business loan, as it typically doesn’t require a credit check and is a quick way to access much-needed funds.