If you’re a small business owner, your need for cash is often greatest in the period before you receive payments. The long-term health of your business may depend on your ability to purchase inventory or essential equipment ahead of time. This seems like such a simple equation … and yet, it can be discouraging to approach banks for a loan if your personal credit is less than stellar. Traditional lenders base their decisions on the personal credit of small business owners, even if that personal credit is bad due to issues that were beyond your control.
Securing Extra Funding is Smart Business
The challenge of getting funded can make it seem as if the savviest business owners somehow manage to avoid asking for any help. In fact, however, a lack of working capital can have a negative effect on your company. SBA figures show that 15 percent of newer businesses and 7 percent of well-established ones report that insufficient financing caused their profits to drop.
Alternative Funding Opens Doors
Until recently, if you were a small business owner turned down by a traditional lender because of personal credit issues, you didn’t have many alternatives. You might rely on a family member for funding, or you might spend precious years working at some other job just to save up money. With today’s new financial options, you have the chance to be respected for your hard work and successful entrepreneurship.
The Strength of Your Business is Key
It makes sense, once you think about it: Whether or not you can get a business loan should logically depend on the health of that business. Not on a personal track record that, as often as not, represents situations over which you have no control. After all, 20 percent of Americans have seen health care costs negatively affect their credit score, according to Consumer Reports, and more Americans (over 1 million) declare bankruptcy from medical debt than from credit card problems or mortgage defaults.
Your Creditors’ Financial Strength is Also Relevant
Instead of scrutinizing your personal track record, alternative funding looks in a much more logical direction: How financially strong are your creditors? If the people who owe you money are reliable payers, that contributes to the creditworthiness of your business. Unpaid customer invoices represent a solid asset, and may make it possible for you to receive immediate working capital through invoice factoring. This type of funding gives you fast access to cash, basically just speeding up your receipt of money that’s already owed to you.
Your Business Assets Can Help You Get Funding
Often, small businesses have significant inventory and other non-cash assets. Reliable accounts receivable also qualify as an asset. You can apply for an asset loan based on the value of these goods. Unlike credit scores, which are the result of the credit ratings bureau’s secret formulas (and which are subject to a 20 percent error rate), your assets are clearly countable. So everything is transparent.
Another asset your business owns is your regular volume of sales. If your track record shows that you expect to sell a certain amount in the next few months, you may qualify for a merchant cash advance. This funding option never involves a question of credit, since it provides you up-front cash and is repaid via a percentage of your sales in future months.
Regardless of the source of your bad credit, you can build a bright future through your own business. It just takes a solid start and a funder who’s interested in helping you build the future you envision. Rapid Finance looks at the overall health of your business, not just your credit score.