Why Considering Bad-Credit Business Loans Might Be A Good Idea
Typical scenario: you’re starting a small business. Your revenue may not be where it needs to be for a traditional loan, and your credit, unfortunately, isn’t up to par either. Often providing collateral in lieu of bad credit can help; however, with the term “collateral” you immediately think of your house or other such personal assets—and this isn’t necessarily comfortable territory. There are other options, however:
Many online and alternative lenders use other forms of collateral to help get you the funds that you need. Such collateral may include outstanding invoices or equipment. In this way, you have access to the money required without having to put your house on the line.
What is Invoice Financing?
With invoice financing, you are using your accounts receivable to get the working capital you need. As long as you have reputable customers with a history of on-time payments, the lender will offer you what amounts to a cash advance on outstanding invoices. Most often, you will receive 75-85% of the value of that debt up front and the balance upon successful collection. The cost of this type of loan product can range anywhere from 2-7% of the invoice value.
How Does Equipment Financing Work?
When you are looking to purchase equipment, the equipment itself is used as collateral for the loan. Even if your credit score is less than perfect, because there is equipment involved and thus tangible collateral, your credit-worthiness can be overlooked.
Much like a typical auto loan, the lender will give you the money needed for the purchase. You pay it back over a specified length of time. Once the loan is paid off in full, the equipment is yours free and clear.
At First Union, we offer a variety of such products to help with all sorts of financing needs. If you are interested in purchasing equipment or if you need cash quickly and have outstanding accounts that could be used as collateral, please don’t hesitate to contact us to see how we can benefit your business!