So you want a small business loan but your credit isn’t stellar. While getting a loan is much easier with good credit, it is still manageable without it. Starting a small business is hard work and you need enough cash on hand to cover all those little emergencies that can arise. A small business loan is a great way to get some cash up front to get you through those early days of establishing your business, but it can be difficult to qualify for a loan when you have bad credit. There are a few alternatives you might want to consider as you build your credit rating.
1. Consider Collateral
If your business has machinery, goods, or equipment that are paid for, you may be able to offer them as collateral for a loan. If you are a homeowner, you might also be able to use your house as collateral for a Home Equity Line Of Credit (HELOC). A bank will consider the value of your assets when establishing the loan amounts.
2. Get a Grant
If the primary owners or investors in the business belong to an underserved class, you may be eligible for a grant. Grants are different from small business loans because they don’t need to be paid back. Underserved populations, such as women or ethnic minorities, are usually eligible for grants. The business usually needs to be at least 50 percent owned by the minority class in order to be eligible for a grant. Grants can be challenging to apply for, so be sure to do your research.
3. Friends and Family Funding
It can be awkward, but borrowing money from friends or family can give you the extra bump you need to start off on the right foot. If you go this route, be sure to remember that it is still a small business loan and take steps to ensure the integrity of the transaction. Protect yourself and them by setting the terms of the loan in writing and specifying exactly how and when the loan will be repaid. You should each have a copy of the loan agreement and make all changes in writing.
4. Use Social Savvy
Similar to the idea of borrowing money from friends or family, but on a larger scale, peer-to-peer lending, also known as crowdfunding, is a terrific way to raise money. There are several websites that allow you to set up a proposition to the public in exchange for a percentage of the profits. Some even let you offer goods or services as a return on investment.
You can use any one of these options, or a combination of them, to come up with the capital to start or grow your business. And when you repay that small business loan, you’ll also be on your way to establishing better credit so that you have even more options when it’s time to grow.