How to get working capital loans with bad credit?
- Posted by Sunil Bhirani
- On August 27, 2021
- Bad Credit Business Loan, Small Business Loan, Working Capital Loan
Are you struggling to get a working capital loan for your business? Because of bad credit history, business owners often face difficulty getting a working capital loan from traditional lenders.
This article will guide you to choose the right funding solution for a working capital loan. Even if your business has a bad credit history.
According to Biz2Credit, big banks approved only 13.6 percent of all small company loan applications in May 2021. While small banks authorized 18.9 percent, and alternative lenders approved 24.5 percent of all SMB loan applications.
Even if you have a decent credit score, say 650, banks ask for collateral. Sometimes small business owners have to pledge their assets, typically home equity, to secure a business loan.
The traditional lenders are reluctant to finance you without collateral, excellent cash flow, and a strong debt-to-income ratio . However, non-bank lenders are more concerned with the financial health of your business and less about your FICO score.
With an alternative lending marketplace like Inspyre Funding, there are plenty of options for your small business. We help you to get quick short-term working capital loans. A timely infusion of cash can give your business the boost it needs. And make the most of opportunities that come along and provide stability during difficult times.
When do you need a working capital loan?
So, what is working capital? By definition, it’s the total amount of your assets minus your liabilities. These assets are your bank funds, machine, equipment, office, and everything else you can sell and liquidate for cash within twelve months.
You owe the liabilities for payroll, goods & services, operational expenses & debts that you need to pay within twelve months. Ideally, a thriving business typically has double the assets than liabilities. This ratio, however, can be difficult to achieve when your business structure changes, such as when you expand.
Negative working capital can give rise to any of the given scenarios,for which you might need a working capital loan:
5 major reasons to opt for a working capital loan
1. To fund everyday business operating costs and ensure that your business is running smoothly. These costs can range from rent or equipment to advertising, marketing, and other operational costs.
2. To improve cash flow when sales are low due to off-season. New businesses often fail to have a financial buffer to combat low sales during the off-season. A working capital loan is an effective way of relieving that pressure.
3. To repay any high-cost debt that your business might have incurred. Late payments of large debt can result in higher fees. It can also result in a poorer credit score, and a general lack of confidence among your lenders. A short-term loan can help you consolidate these high-interest debts and save you trouble.
4. To pay salaries to employees, and for goods & services. The ability to meet payroll and other payments that are due is key to business survival. Without sufficient working capital, a business runs the risk of shutting down.
5. To manage inventory and invest in adding additional stock. A working capital loan will help continue the production cycle of your business and avoid stockouts due to low inventory.
Types of Working capital loan with bad credit
Invoice Factoring– In this type of funding method, you can receive instant cash against your outstanding invoices by selling them to a factoring company. Since invoices are the collateral, in this case, there is no need for additional collateral. And the advance is based on your customers’ credit rather than yours; a high credit score is also not required.
Merchant Cash Advance– To improve cash flow, you can get a lump sum amount as an advance. You repay the amount by deducting a small percentage of future credit card sales. Merchant cash advance or business cash advance, popularly known as MCA loan, is typically a short-term advance. It is widely used to fund in restaurants, salons, auto repair shops, or any retail stores.
Line of Credit– A line of credit is a preset sum of funding that you can borrow when you need it and use the funds as needed for inventory, supplies, or running costs. Unlike a term loan, which has a set monthly payment commitment, you could pay off your credit line whenever you like. There is no penalties for paying it off early.
Purchase Order Financing- Under purchase order financing (PO Finance), you can use your issued purchase orders as collateral. This is a very efficient working capital loan that focuses on a single aspect of your business. It also enables you to continue your production cycle.
Unsecured personal term loans- These are personal loans where no collateral is required. Also, these loans can be issued to you instead of your business. As opposed to business income, it is based on your verifiable earnings. As it considers your income and credit score, the business’s credit history will not matter here.
With Inspyre Funding, get a Working Capital loan with bad credit history
Inspyre Funding helps small business owners with easy and affordable funding so they can thrive in this competitive market. Finacial troubles can happen to anyone at anytime. And sometimes, with no fault of their own, many small business owners cannot qualify for a bank loan. Inspyre Funding’s alternative financing options open up new avenues for your business.
Various other assets like your invoices and your purchase orders can be used to obtain a loan. We understand if you have poor credit due to past financial instabilities. Many of our loan programs are based on cash flows. you can qualify for a loan if your business has the revenue to repay the loan installment with interest. We only need to be assured that your business has enough revenue to repay the loan installments with interest.
Inspyre Funding believes in living up to one’s FULL POTENTIAL. Bad credit history or financial troubles are just a hiccup in the overall journey of a small business owner.
We match you with the best possible working capital loan suitable to your circumstances. And let you continue your business hassle-free Book a free appointment to know more about alternative lending solutions and find out what works BEST FOR YOU!