How to Get a Business Loan with Bad Credit
Your personal and business credit history is less than stellar. In fact, it’s just plain bad, at the same time your business needs financing for working capital. Your customers tend to pay their invoices slowly and you’re desperate for a bank loan.
Business owners find themselves in this challenge for a broad range of reasons. You already know bank loans are not a possibility because lenders look to your profitability, cash flow, and credit history when applying for a loan. The good news is there is affordable working capital available to businesses with bad credit.
Even With Bad Credit, You Can Obtain the Funding You Need
When banks say no, invoice factoring is often the perfect and affordable cash flow solution for your small business. Invoice factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (invoices) to a third party (called a factor) at a discount. The business can meet its present and immediate cash needs.
Unlike traditional financing such as bank lending, invoice factoring enables your business to build capital based on the creditworthiness of your customers, rather than on the credit standing of your business or your personal credit rating. Start-ups, minority-owned, government contracts and client concentration issues can all leverage factoring when the owner has poor credit.
Before a factoring transaction takes place, the factoring firm runs a check on your customers’ creditworthiness to determine whether it will factor those receivables. If your customer has a good credit standing, there is an excellent chance the factoring company will purchase your invoice.
What Are the Benefits of Invoice Factoring vs a Bank Loan?
- Cash in your hands in as little as 24 hours
- Up to 90% advanced on your invoices
- We become your credit department
- IRS issues and liens can often be a nonfactor
- Pre-approve your client’s credit
- All kinds of industries get approved
- Credit protection against bankruptcy through Paragon’s Non Recourse Factoring
How Does Invoice Factoring Work with Bad Credit?
You sell your open invoices from a credit worthy customer to a factoring company at a discount. The factor then advances you a percentage of the face value of the invoices up to 90%. When your customer pays the invoice amount to the factor, the factor remits the balance to you, less a small percentage fee for their services.
The advance on the invoice provides you with immediate working capital, rather than waiting for 30, 60 or even 90 days for payment by your customers.
Even with bad credit, you can obtain the funding you need. You may even be able to factor your invoices if your company has filed for bankruptcy protection.
In addition to obtaining immediate cash, invoice factoring provides you with additional benefits. For example, factoring is not a loan and doesn’t add to the debt level on your balance sheet. Thus, factoring does not raise key financial ratios such as your debt-to-equity.
And invoice factoring is very affordable compared with other types of alternative financing available to a business with bad credit.