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How to Get a Merchant Loan, Regardless of Bad Credit

How to Get a Merchant Loan, Regardless of Bad Credit
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Businesses rely on having access to loans and credit in order to function. But when debt piles up, bills go unpaid, and other problems with your business develop, your credit rating can take a big hit.

This makes it much more difficult, if not nearly impossible, to access the small business funding you need. In fact, the majority of business owners whose businesses have failed cite “lack of access to sufficient funds for operations” as the main cause of their downfall. 

Fortunately, there are some options for business funding with bad credit, including bad credit business loans and merchant loans.

In this guide, we’ll look at the differences between these two funding options, and examine your best choices for small business funding when you have bad credit. 

After all, you need loans and credit products in order to build up your credit, in addition to running your business!

Bad Credit Doesn’t Mean You Can’t Get Small Business Funding

The good news is that bad credit doesn’t mean you can’t get access to small business funding. While you may not be able to avail yourself of all of the different small business funding options that would be available to a business with a higher credit score.

There are still several good choices of funding options that can deliver you the money you need to keep your business afloat, cover your operational expenses, grow, and expand.

Business Funding with Bad Credit – Small Business Loans

Before we get into two of those options – merchant cash advances/merchant loans and bad credit business loans – it’s important to talk about choosing your funding source or lender wisely to maximize your chances of approval. 

Traditionally, most people think of banks or financial institutions as their go-to source for small business funding. For many years, indeed, these were among the only sources of loans and credit products without going the private equity/venture capital route. 

But banks tend to be very risk-averse, and see all small businesses as risky endeavors. As a result, they’ve instituted progressively higher bars to meet or exceed in terms of qualification requirements for their loans.

These days, less than 10% of most small business applicants – even those with otherwise good credit – qualify for loans or credit products from banks. 

This was only exacerbated by the financial crisis of the late 2000s, when credit markets became even tighter, and commercial banks even more risk-averse. The best source of small business funding, especially when you need bad credit business finance, is with private, non-bank lenders.

Many of these companies have developed in the years since the financial crash, specifically to start filling that gap in the market, and serving the needs of small businesses as they struggle to access capital.

Modern private lenders that focus exclusively on small business funding often have much lower minimum requirements to obtain loans, including lower credit score requirements. 

Since they’re not commercial banks, they don’t need to maintain the same risk-averse posture or meet the other stringent risk assessment criteria that banks do.

Consequently, they are more willing to lend money to a wider range of small business customers, including those with bad credit. BizFly Funding is one such private lender, offering both of our bad credit business finance options, and much more. 

We’ll talk a bit more about BizFly Funding at the end of this guide. For now, the key takeaway is that private lenders are often the best choice for bad credit business loans and merchant loans, not banks or traditional institutional lenders.

Business Funding with Bad Credit – Small Business Loans

Bad credit business loans, or small business loans for bad credit customers, are one of two popular bad credit business finance options. These loans are particularly targeted at businesses with poor credit scores, but otherwise decent financial health.

They are certainly more risky for the lenders than loans offered to companies with higher credit scores, but still offer reasonable interest rates and large loan amounts, along with flexible loan terms to suit various business needs.

Bad Credit Doesn’t Mean You Can’t Get Small Business Funding

Every case is different, of course, and lenders have to evaluate each business and loan application on its own merits.

But by specifically offering bad credit business loans, private lenders are acknowledging the need of small businesses – even those with bad credit – to have access to loan and credit products to propel their business forward. 

Without these valuable tools, those businesses are far more likely to fail, and far less likely to ever improve their credit score. At BizFly Funding, the relaxed qualification requirements for bad credit business loans are fairly attainable for most businesses.

They include:

Loans as little as $5,000 and as much as $1,000,000 are available, even for bad credit customers, provided they meet these minimum criteria. 

The loan amounts, duration, and interest rate will vary case by case, though are fairly flexible and reasonable for most bad credit business finance customers.

Business Funding with Bad Credit – Merchant Loans/Merchant Cash Advances

Another more popular option of bad credit business finance is the merchant loan, also known as a merchant cash advance or MCA loan. Merchant loans for bad credit customers are somewhat different in their mechanics, terms, and repayment process than other small business loans.

You still receive your requested amount up front as a lump sum payment of cash or electronic transfer. However, rather than paying it back over time based on calendar dates (e.g., weekly or monthly payments of X amount of principal and interest), the repayment is based on your sales.

Business Funding with Bad Credit

Specifically, credit and debit card sales are the source of repayment. An agreed-upon percentage of sales is automatically deducted from each debit or credit card transaction to repay the merchant loan’s principal and interest.

This provides a great deal of financial security for the borrower, since repayment is reflective of sales. If sales decline, repayment amounts decline. It leaves businesses not stuck with large, fixed payments when sales or the economy take a downturn.

Because the repayment is more of an open question for the lender, these kinds of bad credit business finance products tend to have a somewhat higher interest rate. 

For small businesses with bad credit, however, they can be incredibly valuable, and often are some of the only loan or credit products they can qualify for.

To qualify for a merchant loan with bad credit at BizFly Funding, you need to meet the following minimum requirements:

Bad Credit Business Finance Solutions from BizFly Funding

BizFly Funding is a top small business funding company based in the US and serving the US market. They deal exclusively with small business funding, including bad credit business loans, merchant loans, and several other financing options.

You can get pre-approved quickly online with their digital application, consult with expert customer service team members, and get your funds as soon as the next business day if approved. 

For more information, check out BizFly Funding’s website at http://bizflyfunding.com.

Frequently Asked Questions about Bad Credit Business Loans

Your options may be somewhat limited by a bad credit score, but you can still qualify for bad credit business loans and merchant loans in most cases. 

In the case of BizFly Funding, so long as your credit score is above 500, and you meet the other minimum requirements, you have a good chance of approval.

Merchant cash advances, MCA loans, or merchant loans – whatever you may call them – are perfectly legal and normal financial instruments offered by reputable lenders. 

They’re quite common, and a great way for businesses in need of bad credit business financing options to gain access to up to several hundred thousand dollars in loan funds.

In broad terms, there isn’t much difference between a small business loan and a merchant loan/merchant cash advance. Functionally, the key difference is in the repayment. 

A typical loan has a calendar-based repayment of fixed amounts. Merchant loans have variable repayment as a percentage of sales. So, the time for repayment can vary considerably based on the sales performance of the business. 

It protects business owners from having large fixed payments due on a small business loan that they might not be able to make during times of poor sales activity.

Merchant cash advances/merchant loans tend to have a higher interest rate than many other small business funding options, due to the variable repayment schedule discussed above. 

As a result, they’re often seen as a last resort option for many businesses.

But, they are ideal if you are a sales-driven business, doing most of your sales in credit or debit card transactions, and have a variable revenue cycle, can’t afford the fixed payments on a small business loan, and still need access to a lump sum of cash up front.

Because a merchant cash advance or merchant loan’s repayment schedule is based on sales, the amount of time it can take to repay the loan is highly variable.

Most lenders will have a kind of target date in mind based on the loan amount and your revenue, but it’s not something that’s written into the loan agreement. 

If it takes longer or shorter, that’s perfectly fine. It depends on your sales, how much you borrow, and how steady or variable your sales are.

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