Don’t Have Good Credit? Here’s How You Can Still Fund Your Business
Having blemishes on your credit can make most things in life more challenging. This certainly applies to small business owners with less than perfect credit. How can you still fund your business if you don’t have good credit?
Your business need for cash is still the same, regardless of your credit score. Yet, trying to find that cash when you need it most can feel like it’s a nearly impossible venture.
But, there are ways around lack of creditworthiness that can keep your business humming.
Is Debt The Right Answer?
Every business requires cash flow. Without liquidity, enterprises struggle with taking care of the most fundamental operational needs. You can’t pay your employees if you don’t have cash available. You also can’t buy more inventory, pay your overhead expenses, nor procure supplies without currency.
Without cash, you cannot grow your business.
Many business owners turn to debt as the answer. For a small business owner with excellent credit, the risk to the lender is much lower, and so they can secure a lower interest rate. Since the debt will not be nearly as expensive, financing may make the most economic sense.
But, not everyone in business has good credit, and that data point alone should not stifle the activity of an entrepreneur.
Peer-to-peer lending is a relatively new resource for business borrowers that mixes the benefits and technology of crowdfunding and marketplace lending. In the peer-to-peer marketplace, your credit score may not matter as much. However, there are some substantial disadvantages to this new funding source. For one, it is not nearly as regulated, so many of the protections afforded to traditional financing don’t exist.
Cleaning Up The Credit
Before we move any further, let’s make clear that for the success of your business, you really should focus on increasing your company’s creditworthiness. That includes cleaning up your personal credit history.
However, you must recognize that this effort will take cash, time, and close management. Your business must still function while you grow or improve your credit rating.
Seek Out Investors
If going into more debt isn’t your preferred choice, or you can’t qualify for a loan from a financial institution, perhaps you should consider looking for investors.
With an investor or two, you may give up a portion of the equity in your business, which isn’t all that appealing. However, if your business plan for your product or service is compelling enough, your creditworthiness may not matter as much to the right person.
If this doesn’t sound like the ideal solution to you, don’t worry, you are not alone if you don’t relish in the thought of giving up equity, and power, of your business.
There are other ways to fund your dream, even if you don’t have good credit.
The Non-Traditional Approach
Fortunately, there are options available to the small business owner. You don’t have to rely entirely on financing to open up cash flow in your business.
If your company depends on an invoice cycle for payment from customers, your accounts receivable assets may be the answer to how you can still fund your business if you don’t have good credit.
And, it might be the easiest route available, believe it or not.
Have you heard of invoice factoring?
Many industries use invoice factoring as a means to keep the cash flowing. Invoice factoring is a convenient solution that provides immediate financial results and doesn’t rely on your credit score.
What Types of Companies Benefit from Invoice Factoring?
So, who uses invoice factoring in today’s market?
Invoice factoring is an excellent option for service industries, as they often depend on invoices as a means of billing for the service provided. These businesses include staffing agencies, manufacturing, transportation, and catering, to name a few.
If you have a business-to-business company that bills via invoices, then this funding option may be a good fit for you.
How Invoice Factoring Works
How exactly does invoice factoring work?
Let’s take an in-depth look.
It’s actually quite simple. Typically, your B2B transactions consist of you providing a service and then invoicing your customer. The customer pays the invoice in a window of usually 30 to 60 days.
It’s clear to see how this payment cycle, which ties up cash for as much as two months, could pose challenges for a small business that needs that money to pay bills or expand.
When you use invoice factoring, there are three parties involved in the pay cycle: your business, your customer, and the factoring company.
Rather than wait weeks to see the payment on those services, your business can sell the invoice to a factoring company. The factor then provides your company with a percentage of the payment immediately. The customer then makes their payment to the factor, rather than your company. Once payment is received, the remaining portion, sans any service fee for the factoring, is sent to your company.
Is It A More Expensive Solution?
While invoice factoring is undoubtedly more expensive than the interest rates on a traditional loan for those who have good credit, for many businesses, a small increase in the price of service can help with the cost of factoring.
It’s also vitally important to do your homework and make sure you find the right factoring company with upfront rates. Watch for hidden or buried fees. Seek out a factoring company that practices transparency upfront.
You Can Keep The Lights On, Even With Bad Credit
There is no denying that keeping a business afloat without good credit can be cumbersome. Ultimately, improving your creditworthiness can make navigating the world of business a little less daunting.
With options available to you like invoice factoring, you can still run a successful business, even if you don’t have good credit. Pay your bills. Pay your employees. Grow your company. All of it and more is still possible, regardless of credit.