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Types of Bad Credit Business Loans

Sep 1, 2008
Getting a loan for your business can be a difficult process, but having bad credit puts even more of a strain on the process, causing business owners and potential business owners to go to extremes to find adequate business financing. Though most business loans given by banks do require the borrower to have an excellent credit score, there are other options which are sometimes referred to as bad credit business loans.

Collateral Based

When a lender can't count on your credit score for an indication of your ability to repay a loan on time, a loan can sometimes be approved if you have substantial collateral to put up. Most banks require both an excellent credit score and a certain amount of collateral. Since the lender is supplying a business loan, and eliminating the requirement of a great credit score, the collateral requirements increase in order to compensate. This means, if you default on your loan payments, the lender takes ownership of the items that you put up as collateral in order to acquire the amount that you have defaulted.

A collateral based business loan can be just as beneficial as a business loan that does not require as much collateral. You can get the same amount of money, enabling you to make your desired business purchases. However, this is more of a risk to the borrower due to the amount of property that must be put on the line.

Equipment Leasing

Equipment leasing is beneficial when a business owner needs funds to purchase equipment. Usually, equipment leasing companies can lease any type of equipment that is needed for your business. This is because they purchase the equipment themselves, and let your business use it in exchange for a monthly payment. This is usually done for a period of time and the business owner is given the option to purchase the equipment.

In this case, the equipment is used as collateral. If the borrower is unable to make the required payments, the equipment leasing company will seize the equipment.

The Business Cash Advance

A business cash advance is a sum of money given to a borrower as a purchase in advance for a business' future credit card sales. Business cash advance lenders are able to lend to borrower's whose credit scores are not great because the repayment is based on the credit card sales that the business makes. Therefore, you are able to get a lump sum up front, and from thereafter, a small percentage of your business' credit card sales is deducted and put towards your business cash advance repayment until it is paid off.

This is beneficial because it gives business owners the opportunity to attain funds for their businesses without requiring them to put up collateral or make fixed monthly payments.
About the Author
David Castro often writes articles about Bad Credit Business Loans and Small Business Loans for Merchant Resources International - To Learn more Visit Us at http://www.cashprior.com.
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