Starting a small business can take a significant financial toll. Regardless of whether you’re trying out a construction company or when you’re a solo entrepreneur needing a computer, startup expenses are always needed. Heavy machinery, equipment, and inventory should be bought, contractors and employees should be paid, and there’s rent.

What’s worse – is that it can even go downhill when you have bad credit. With this problem, external funding can be limited since some lenders look at a good credit score. On the bright side, there are alternatives to bridge your funding gap when your business is still young.

Online Lenders

When you’re thinking about how "no one will give me a loan with a bad credit score," here's where online lenders emerge as the best option - most especially for business startups. Online lenders offer various financing options, many designed with little credit requirements.

Not only this, online lenders also offer business cash advances, which are helpful for emergency costs. For this, an online lender will grant you cash in exchange for a portion of your future sales, a beneficial option for starting businesses with solid sales with poor credit.

Community Development Financial Institutions (CDFIs)

Community Development Financial Institutions (CDFIs) are private financial institutions that focus on lending businesses money to generate development efforts and economic growth - especially for poorer communities. You can receive funding from individuals, religious institutions, or corporations here.

Moreover, CDFIs are found across the United States and offer a wide variety of financial services and products to underserved communities. To qualify for the business loan, you’d need typical business requirements, such as financial projections, personal credit history, and your business plan. 

Equipment Financing

If you plan to start a construction company and expensive and top-quality equipment is a must-have, you could always try equipment financing. This option allows your business to purchase machinery through an operating lease, finance lease, or hire purchase.

Moreover, since this business loan operates with the price and value of the equipment as a basis, there’s no need for businesses to have any revenue. The equipment will also act as collateral for the loan, which is why business lenders are willing to loan startup costs.

Crowdfunding

Crowdfunding is another way to help kickstart your capital. With crowdfunding, you can help grow your startup money with small contributions worldwide. This form of financing helps businesses launch new services or products, attract people to send cash, and validate your business idea in the market.

With crowdfunding, you can even raise your business into an established corporation with money from investors. Since it uses the accessibility of crowdfunding sites and social media, it extends beyond owners and relatives and into a pool of investors.

Grants

The last option to try is a business grant. This is essentially a gift from a foundation, company, or government. Unlike a loan, you don’t have to pay back the money given to you; however, it’s not free money either. The funds in the grant should be used by the terms set by the giver. If you fail to meet the terms, the money must be paid back - sometimes with interest.

Since multiple grants are available, you can always apply for the one that’s most applicable to you. For a government grant, you’d have to go through a competitive process that describes why your business will help the local community, which is why you’d have to create a convincing proposal. Although this may be the case, getting the grant ultimately provides you with unlimited resources for funding and business growth.

How Do You Do It?

Getting the loan, grant, or crowdsourcing idea is more straightforward said than done, so here is a breakdown of what you need to consider:

1. Evaluate what you need

Before you can apply for your business loan, you need to evaluate your needs. Here, you need to list down how much you need and how you will use it. Doing so will help you clarify the loan type that best fits your needs.

2. Take the Time to Research

Next, researching various loan options is a need. Since each type of loan also comes with its terms and eligibility criteria, you need to compare all those requirements with your current score to see if you qualify.

3. Check Your Business Plan

Your business plan is a need to get your startup funds. Since lenders generally need to see a comprehensive business plan before approving your loan, having one beforehand will help you in the long run. Here, you should include the details of your product or service, an overview of the business, organizational structure, and financial projections.

4. Collect the Required Documents

After your business plan, it’s time to contact your chosen lender for other additional documents they may need. Typically, you’ll be asked for financial statements, proof of identification, and tax returns. Moreover, specific documents may vary, so ask your chosen lender directly.

5. Apply for the Loan

Once you have everything on hand, you can apply for your loan or grant. Additionally, don’t forget to read through the loan agreement thoroughly before you sign. Make sure you understand your repayment schedules, terms, and penalties.

Final Thoughts

A bad credit score will no longer hinder your business since you now have alternatives to the solutions found above. Regardless of what option you choose, be sure to understand the flow of the money with the interest and repayment. As much as possible, go for the most favorable loan and always choose the one you can most keep up with.