No Credit Check Small Business Loans – Every great business has to start somewhere. Apple and Amazon founders started their business dreams in garages. Samsung started as a grocery store. Coca-Cola originally made its product in jugs and sold the now-famous soda at the local drugstore for a nickel a glass.
Many companies start from nothing before becoming something special. However, when the time is right, getting the right funding for your startup is critical to getting your business off the starting block and on the road to success.
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If you’re looking for funding to get your startup off the ground, the good news is that there are many ways to get funding. Even as a small business owner with no income or credit (or bad personal credit), you may be able to find a business loan to get you started.
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When you apply for a business loan, many business lenders check your credit history to get an idea of how you’ve handled credit in the past. Checking past credit history and checking your credit scores can help lenders predict risk. The problem for many entrepreneurs is that their new business has not yet had a chance to establish a track record of handling credit obligations.
While lenders’ usual rating metrics are based on longevity (time in business and length of credit history), they need to take a different approach for startups. Instead of looking at business credit, a lender may focus on your personal credit score and overall business experience.
This alternative approach to risk assessment can work because business owners’ personal credit scores can also provide lenders with valuable predictive analytics. At its core, a credit score (both business and personal) is a formula lenders use to predict whether you’ll repay borrowed money as promised. And that important information—likelihood of repayment—is what a lender really wants to know when applying for a loan.
There are many loan products available to small business owners. However, business owners with poor credit scores or those who prefer to avoid a credit check for other reasons find more success with invoice factoring, ACH loans or business loans.
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The eligibility criteria for the above three financing options depends less on your credit scores and more on other factors. This does not mean that you will automatically get approved with a very poor credit score. But if you have experience in your industry and a positive credit history, you may have a fighting chance to qualify.
With invoice factoring, most lenders do not have a minimum credit score requirement. Consequently, your application for financing from a factory company does not include a credit check. Here is an overview of how this financing option works.
Invoice factoring involves selling your company’s outstanding B2B invoices to a finance company for cash. Generally, a factoring company can advance you between 70% and 90% of the value of your invoices. A factoring company works directly with their customers to collect outstanding funds when an invoice is due. After collecting the money, the factoring company will return the remaining balance to you, plus a factoring fee (usually 3% to 5%).
Lenders generally do not check your credit when you seek financing through an invoice factoring system. Instead, your customer’s credit may matter. With this type of financing, the factoring company collects payment from your customer, not from you or your company. Therefore, your customer’s creditworthiness can affect your ability to qualify for financing and the fees a lender will charge you.
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An ACH loan is another financing solution to consider if you need business financing for bad credit or no credit at all. Most lenders that offer ACH loans require a minimum credit score of 500 to 625. (These lenders usually only run a soft credit check that doesn’t affect your credit score). However, a handful of ACH lenders do not require a credit score. Review all.
One of the reasons ACH loans are so popular with business owners is their fast funding speed. Once the lender approves the ACH loan, you can usually receive the loan proceeds within a couple of days. This agility of financing can be a significant advantage for a small business at the start-up stage.
Of course, just like ultra-fast sports cars, you’ll likely pay a premium for the speed of ACH loans. Daily or weekly, the lender takes the agreed amount from your bank account as an ACH deduction. (Hence the name.) The amount you can borrow is usually less than the amount you can borrow through other financing options. But many small business owners find that the trade-off is fair, thanks to the convenience that ACH loans offer.
Lenders will likely check your credit when you apply for a business line of credit (LOC). However, some lenders will only conduct a soft credit inquiry to assess your company’s LOC application. (Remember, soft credit inquiries have no effect on your credit score, unlike hard credit inquiries that have the potential to affect your credit score.) Other lenders may perform a soft credit check for the pre-approval process and follow up with a hard one. Credit inquiry during financing.
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A business loan is similar to a business credit card in several ways. A LOC includes a credit limit, which typically ranges from $1,000 to $500,000. Depending on the lender, you may have access to the funds within a week or two. Financing usually has a tenure of one to two years.
Perhaps the best feature of a business LOC is its flexibility. If your restaurant needs a new fryer, buy one. If you need to hire employees, go for it. If you want to increase your inventory, go for it. Any expense that goes into starting and operating your business is fair game.
Like credit cards, this type of financing gives you access to revolving credit. It differs from most loans in that it provides you with upfront money. With an LOC, you simply use the line of credit when needed. There’s no pressure to spend it and you’ll only pay interest on the funds your business borrows.
Getting funded as a new startup with no cash can be a challenge. Most small business loans have at least some minimum income requirements. So if you have the ability to wait until your business makes some money, it opens the door to more financing options and more attractive loan terms.
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In the meantime, there are at least two possible ways to get a loan before your startup starts generating revenue. You may consider applying for an equipment loan.
Some equipment finance lenders (not all) are willing to work with startups. These lenders may not have minimum monthly income requirements and may not have minimum time requirements to satisfy the applicant. The collateral your business is purchasing secures the loan and reduces risk to the lender. However, depending on the lender you may need decent personal credit to qualify for this financing option.
An SBA microloan provides financing for small businesses up to $50,000. The loans are intended to support disadvantaged communities and are disbursed by non-profits or Community Microloans. The requirements to qualify for a microloan vary depending on the lender. Some review your credit score and personal finances to qualify you for a loan, while others want to look at a longer financial history for your business. Although some of these lenders do not require positive business cash flow, they do require a personal guarantee and/or collateral to secure the loan.
Accessing business funding as a new startup is not always easy. According to Gallup, 77% of small business owners use personal savings as a source of startup capital. However, there are alternative ways to fund your business dreams that don’t involve draining your personal bank account.
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An important step in finding a loan that fits your business needs is identifying how much money you need to borrow. Each lender has a different range of financing that they offer. So you probably won’t look for a $5 million loan in the same place you would look for a $5,000 loan.
Likewise, you need to figure out how fast you need to get the borrowed money. Some loan proceeds may be available within days or hours. For other loans, the financing process can take weeks or months.
Then crunch the numbers and see which loan gives you the best returns. There are many easy-to-use loan calculators available online. So don’t worry if maths is not your forte. (Note: It’s wise to compare multiple loan options to make sure you’re getting the best deal available for your small business.)
Be aware that small business lenders often use inconsistent metrics when disclosing financing costs. While disclosures vary from lender to borrower, it is difficult to compare
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