Entrepreneurs need access to funding at various stages of their business journey. But not all have the means to raise capital themselves. Many turn to a bank or lending provider to help them reach the great heights of success.
Alongside a solid business plan, an excellent credit history helps entrepreneurs secure funding approval. But what about those with a less-than-perfect credit score? Are they destined to hold off on their dreams until they’ve spent years rebuilding their credit?
Some big banks and high-street lenders won’t touch poor credit entrepreneurs with a bargepole. Fortunately, there are specialist lenders that will come to their aid in the form of a bad credit loan. Here are some ways this type of funding helps entrepreneurs succeed:
1. Access to startup capital
A bad credit loan can help entrepreneurs get their business off the ground, making their dream a reality – without waiting six years for default payments, CCJs or bankruptcy to slide off their credit file. For the entrepreneur who is struggling financially, being able to start a new business venture could be just what they need to turn their life around and begin to build real wealth.
2. Business growth support
Many entrepreneurs need funds after launching their small businesses to expand operations. It could be for recruiting employees, adding to inventory, purchasing assets such as machinery or IT equipment or marketing to a new customer base. A bad credit loan can provide cash for expansion, helping entrepreneurs push their business forward and gain a competitive edge.
3. Cash flow management
A positive cash flow is the cornerstone of any successful business. It essentially means there’s more money coming in than there is going out. But, it’s not unusual for small firms to experience a negative cash flow at some point; a common reason is due to customers making late payments.
When this happens, it can be hard to cover working capital for paying suppliers, staff wages, or other operational expenses. An entrepreneur might first turn to their overdraft to ease cash flow problems, but a bad credit loan could save the day if this isn’t possible. It can bridge a cash flow gap until money starts flowing into the business again.
4. An emergency fund
Unexpected costs are a significant threat to any business. Equipment breakdowns, a rise in supply costs, an increase in rent for premises and an eye-watering tax bill due to an incorrect calculation are all unanticipated expenses that could affect a small business owner. In which case, bad credit finance can serve as a safety net to pay such costs so that day-to-day operations can continue smoothly.
5. Fast approval and quick funds release
Bad credit loans are often easy to apply for and quick in terms of the approval process compared to traditional business loans or regular personal loans. Applications are usually made online, and some providers won’t need to do a hard credit check, which speeds things up.
There also aren’t any stipulations over what the funds should be spent on. Entrepreneurs could effectively get approval the same day they apply and have the funds released into their account within a few business days, helping to alleviate financial stress and worry.
6. Timely opportunity seizing
Entrepreneurs may sometimes be presented with a window of opportunity in which to develop their business, for example, by expanding into a global market. This is best done quickly to benefit from an increased market size, new revenue streams and greater competitiveness.
Another example is when more suitable premises become available (perhaps bigger or in a better location). New buildings must be secured immediately before another business can beat the entrepreneur to it. Because bad credit loans land in the entrepreneur’s bank account quickly, they can help them snap up opportunities as they arise.
7. Credit repair
With a credit builder loan, entrepreneurs can not only access the funds they need for their business but also gain headway in improving their credit scores. These sometimes work differently in that the borrower makes the repayments over a set term, e.g. twelve months, before their money is released.
This can be a good option for entrepreneurs still a while away from launching their business and who want to demonstrate that they’re responsible borrowers. By improving their credit score, they should be able to access better interest rates in the future.
8. Staying afloat
Small businesses fail for many reasons – a lack of planning or knowledge, poor cash flow, insufficient demand for a product or service, ineffective marketing, and environmental factors beyond the owner’s control. The Covid-19 pandemic was a prime example of the latter; it caused many businesses to go bust.
Entrepreneurs can use bad credit loans to avoid having to sell off essential assets – or worse – having to fold their business altogether. Instead, they can use the funds to cover expenses, pay debts and keep any staff employed.
Entrepreneurs with a poor credit history face limited funding options to help them launch or grow their businesses. However, it’s essential to fully explore all those options before turning to a bad credit loan, which typically comes with high interest rates and, therefore, a high monthly payment. Some bad credit loan providers will only lend small amounts and may also require collateral – an asset upon which the funds are secured – in the event of the borrower defaulting on payments.
Alternative routes to funding that don’t rely on going cap in hand to a financial services provider include crowdfunding, bootstrapping or asking for investment from friends and family. But if these options aren’t available, a bad credit loan can indeed provide a lifeline for financially struggling entrepreneurs, who can use them strategically in the short term until their creditworthiness improves.
Bad credit finance can give such entrepreneurs access to startup capital to bring their business ideas to fruition now, not in several years’ time. It can also support business growth, act as a safety net for urgent expenses and bridge gaps in cash flow. It could help entrepreneurs boost their credit rating so they may take advantage of more favourable terms later down the line – and could even be the difference between staying in business or going bust.
