Does there always seem to be too much money at the end of the month? For many businesses, sensible borrowing is essential to maintain a healthy cash flow, as well as to invest in fresh equipment or infrastructure in order to grow the business. Unfortunately, a business with a poor credit score may struggle to find the bad credit loans needed to operate successfully.
Although it may not be possible to access money from a mainstream lender, there are several other methods of raising cash if necessary, using a selection of business financing and sub-prime borrowing methods.
Here we consider a number of sub-prime lending options, including invoice factoring and financing, taking out a credit card, peer-to-peer lending, microloans, a merchant cash advance, or a short-term loan.
Invoice Factoring and Financing
Many companies struggle with cash flow problems due to unpaid invoices. When a significant amount of cash is tied up in unpaid invoices, it’s possible to sell the invoices to a third-party company. The company will pay a percentage of the invoice value, keeping the balance as a payment for their service.
Once the invoice is sold, the responsibility for collecting the unpaid monies transfers to the invoice factoring company.
In comparison, invoice financing works by businesses borrowing a percentage of their unpaid invoice value from a lender. Once they have collected the debt, they repay the lender, along with interest.
A Business Credit Card
Although a credit card for businesses with poor credit may initially have a comparatively high rate of interest, it can be a good option for fast borrowing. Provided repayments are made on time, taking out a credit card can be a good way of beginning to establish a favorable credit score.
A peer-to-peer loan consists of money loaned by many backers, rather than from an institution. Therefore, if you wish to get a loan without bank statements, peer-to-peer loans could be one of the options for you. Peer-to-peer loan lenders will typically accept a higher level of risk than conventional lending institutions but may request more collateral, charge more interest and make you (rather than the business) personally liable for any default on the loan.
Microloans are small loans (typically $1,000 or less) usually provided by non-profit organizations. Eligible businesses are likely to have philanthropic or social aims. A microloan may also come with additional requirements besides repayment, such as attending a business finance course.
Merchant Cash Advance
If most of your customers pay by card, you may be able to borrow against future card transactions. A lender will advance you a sum of money, then recoup a fraction of it from each future card payment transaction your business records.
Short-term loan lenders will often provide short-term credit, with loans typically repayable in a month or so. Interest rates may be high, and there may be significant penalties for missed or late payments. These are convenient as the majority of the time you may not have to present any collateral to secure the loan. A prime example of this would be bridge loans from https://www.
To find out more about raising collateral, servicing debt, and other business finance matters, contact us or take a look at our content for further information.