Every year, thousands of businesses in Wisconsin go without getting the capital they need to grow their businesses due to bad credit. The lack of access to sources of capital for businesses owners with bad credit results in declining capacity to grow revenue, purchase equipment, hire new employees and expand into new markets. Fortunately, small businesses with bad credit have a number of alternative funding options available to them, including:

  • Merchant cash advances: Merchant cash advances are a type of financing that allows businesses to borrow money based on their future sales. The lender will typically advance the business with a lump sum of cash, which must be repaid with a percentage of the business’s future credit and debit card sales. Upside: Merchant cash advances can be a good option for businesses with bad credit because they do not require collateral and have a quick application process. Downside: They can be expensive, with interest rates ranging from 10% to 50% or more.
  • Invoice factoring: Invoice factoring is a type of financing that allows businesses to sell their outstanding invoices to a factoring company in exchange for immediate cash. The factoring company will then collect the payments from the business’s customers. Upside: Invoice factoring can be a good option for businesses with bad credit because it does not require collateral and can be a good way to improve cash flow. Downside: The factoring company will typically charge a fee for its services, which can range from 1% to 5% of the invoice amount.
  • Business lines of credit: Business lines of credit are similar to personal lines of credit, except that they are designed for businesses. Businesses can use a line of credit to borrow money as needed and repay it with interest. Upside: Business lines of credit can be a good option for businesses with bad credit because they offer flexibility and can be used for a variety of purposes. Downside: They can have high interest rates, and businesses may be required to put up collateral.
  • Peer-to-peer (P2P) lending: P2P lending is a type of financing that allows businesses to borrow money from individuals through online lending platforms. Upside: P2P lending can be a good option for businesses with bad credit because it does not require collateral and can have lower interest rates than traditional loans. Downside: However, the approval process can be more competitive, and businesses may need to offer higher interest rates to attract investors.
  • Government grants and loans: There are a number of government grants and loans available to small businesses, including some that are specifically designed for businesses with bad credit. Businesses can find information about government grants and loans through the Small Business Administration (SBA) website.

In addition to these alternative funding options, small businesses with bad credit may also consider bootstrapping their businesses, which means growing the business without external funding. This can be done by generating revenue from the business itself, reinvesting profits, and keeping costs low.

When choosing an alternative funding option, it is important to compare interest rates, fees, and repayment terms. It is also important to make sure that the lender is reputable and has a good track record.

Need assistance in determining what is the best option for you? Contact Develop Wisconsin today! We can help you identify sources of capital that meet your needs.

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