Creating, building and owning your own business is still an essential element of the American Dream. However, even if you have a great idea and a solid business model, it can still be difficult to raise enough money to start a new business, especially if you have less-than-perfect credit.
But if starting a business was easy, everyone would do it. While obtaining a small business loan can be challenging, there are a number of options available for smart, dedicated entrepreneurs to obtain the money they need. Various options are available, and there are many sources that could provide the necessary capital to create or grow your small business.
However, no lending option is one-size-fits-all, and each will have its own advantages that may make it right for some and downsides that make it wrong for others. No matter your circumstance, you should be able to find the right type of small business loan that can get your company where you want it to be.
The U.S. Small Business Administration provides multiple lending options that could benefit startups and established small businesses that need a loan. Their most common and well-known loan is the 7(a) program, and this provides wonderful financing options for those who qualify. Unfortunately, it can be very difficult to qualify, especially for a brand new businesses. Loans from the 7(a) program generally require significant collateral such as property or equipment that may be sold in the event of a default.
The S.B.A. also has a microlending program that is easier to qualify for. This can be a better option for startups, but the only problem is the “micro” part. These loans only go up to $50,000, which is usually not enough to start a business by itself. Plus, the entire process for any S.B.A. loan can several take months, and this would obviously not work for those who need funds quickly.
With that being said, the S.B.A. is not the only game in town for microloans. If your business only needs a small amount, a microloan from a private institution or a nonprofit can be a great option. Nonprofits generally offer microloans to specific disadvantaged or minority groups, or for businesses in traditionally low-income communities. There are also nonprofit loans designated for current and former military members, making them the perfect business loans for veterans.
One of the most common sources of money for small business owners is a small business loan. While this is always an option, it should not be your first choice if you have anything less than perfect credit. Since those with bad credit cannot qualify for bank loans, they generally turn to online lenders which carry high interest rates and predatory terms.
A trend that has exploded in popularity over the last few years, crowdfunding may be the best option for your small business. This allows you to collect funds via online campaigns, and pay your investors back with gifts or company equity instead of cash. Crowdfunding can provide enough cash to start your business without a credit check or collateral.