How to Get a Business Loan with Bad Credit

Date posted: Sept. 10, 2015

Whether you want to launch a new business or you need some capital to help with other expenses, there are a few different ways to get a business loan with bad credit. Some of them may be a little risky, and others will require you to come up with some collateral, but for the most part, they are all fantastic options for getting off the ground.

Find Investors

One of the best ways to get a business loan with bad credit involves finding investors who believe in your product. These individuals can provide you a lump sum of cash up front in exchange for a stake in your company. For instance, you may ask for $10,000 in exchange for 5% of your company, but bear in mind that the more money you ask for, the more stake these investors expect. Be sure to hone your negotiating skills before you get started, and you just might land yourself a fantastic deal. 

Incorporate Your Business

Another way to get a business loan with bad credit involves incorporating your business. This will essentially make your business its own legal entity, separating it from your personal credit history. Before you incorporate, though, consider all of your options. Public, closely held, and limited liability corporations all come with their own inherent sets of pros and cons, and they each have their own tax considerations. You may want to seek the council of a lawyer, accountant, or financial manager beforehand.

Try Grant Programs

Some local areas in Canada offer grant programs that can help you get your business off the ground, but whether or not you qualify depends on the type of business you run. For example, if your business is healthcare or technology related, then there are several options available to you. On the other hand, if you own (or plan to open) a retail business in low-income parts of cities like Toronto or Ottawa, you may qualify for grants, as well. The best part about grants is that you do not have to repay them.

Internet-Based Micro Loans

Finally, you may want to consider micro-loans from web-based lenders. A micro loan is an amount between $5000 and $25,000 in most cases, and rather than prove your credit history, you only need to show your business's revenue for the last 3, 6, or 12 months. Bear in mind, though, that these micro-loans often have high interest rates because there are no credit checks involved. If you decide to go this route, borrow only what you need and repay it as quickly as possible in order to mitigate those interest rates.

Peer-to-Peer Lending

Peer-to-peer lending sites are unique in that individuals from all walks of life come together to provide funding for hopeful new entrepreneurs. By creating an account with one of these sites, you can submit a proposal to borrow or fund someone else's cause. Thousands of people donate small sums of money in hopes of building up their own accounts. Though it is not always the best option since the amounts are limited, it is a great place to start – especially if you need only a small amount of money.

Bad credit does not have to stop you from running your own successful business. In fact, government grant programs encourage everyone to open certain types of businesses that benefit Canadians as a whole. Other options like micro-loans and incorporation have some pros and cons, so be sure to weigh them carefully before you make a final decision

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