When it comes to getting small business loans Johnson City TN companies may find it difficult to get approved by traditional lending institutions if they have bad credit. Banks generally hesitate to approve loans for borrowers with bad credit under the assumption that they are unreliable and therefore risky propositions. According to the Fair Isaac Corporation (FICO), a credit score between 300 and 629 falls in the bad spectrum. Various factors such as your credit, capacity, capital, conditions, collateral, and character play a role in determining your debt repayment ability and creditworthiness to give the FICO score.

So, what do you do if your bad credit makes you ineligible for most loans? Well, you can look toward non-traditional lending options.

Best loan options for small business owners with bad credit

For getting reliable small business loans Johnson City TN companies can do the following:

Search for online lenders

You may find many alternative sources like online lenders. Many of them will approve loans only if you have a personal credit score between 500 and 650 at least. However, others may be willing to lend if you can prove your business has a good cash flow. You can get approved more quickly, and get the funds faster than other lenders, but online lenders generally charge higher rates for both bad and good credit.

Contact microlenders

Many nonprofit organizations extend microloans without insisting too much on your credit status. You may get microloans from them even if you have bad credit. However, they have limited funds to offer and these may not be enough for your business requirements.

Borrow from CDFIs

Community developmental financial institutions (CDFIs) receive government funding to cater to low-income groups without extensive access to traditional banks and credit unions. You may be able to get small business loans approved through a CDFI as their credit requirements are not particularly strict. However, they may take their time to give you the funds.

Use credit cards

Using credit cards is another alternative option if you have a bad credit rating. You can borrow up to $50,000 with a business credit card. However, you do need to have a FICO credit score of at least 630 to qualify for the business credit card in the first place.

Try merchant cash advance

You can give unpaid invoices to the lender to obtain the capital you require for your business. The value of the invoices will determine the cash amount you can get from the lender. They may also check your FICO credit score before they extend you the merchant cash advance. Consider this financing option only after you have exhausted all others since the interest rates with merchant cash advances can be very steep.

Get equipment financing

Equipment financing loans are also known as collateral loans or secured business loans. In this type of financing, the lender will extend you a loan for purchasing equipment, and, in many cases, they will pay the equipment vendor directly. The equipment will serve as the collateral for the loan, so it does not matter if you have bad credit. If you are unable to repay the loan, the lender will collect the equipment.

Apply for a short-term small business loan

With short-term small business loans, Johnson City TN companies can receive capital to meet their immediate business needs and get some breathing space. The lender will specify the loan payment schedule and the fixed amount you must pay. This amount comprises the principal amount and the interest on the loan.

Obtain a short-term business line of credit

With a short-term business line of credit, the lender will approve, issue, and allow you to access funds up to a specific amount. They will charge you interest on the open balance. This type of financing is similar to credit card financing.

Consider a working capital loan

If you are facing a financial crunch, a working capital loan can help you to stabilize your cash flow. You will be able to pay for the immediate business operational needs, such as paying wages and taxes and buying supplies. There is no collateral for a working capital loan, and you receive funds quickly, but the APR is high.