Smart Ways To Finance Your Business At Any Credit Score

When it comes to securing business funding, you cannot hide from your business credit scores. Whether you like it or not, your credit score plays a crucial factor in determining your chances of securing business finance.

If you have a good credit score, then you’ll have an easy time securing business loans. You’re likely to have multiple options – banks, NBFCs – to choose from. With a good credit score, you enjoy added leverage, helping you secure the best interest rates on your business loans.

On the other hand, if your credit score is low or non-existent, then it’s an uphill task securing the right funding for your business. A low credit score isn’t something that you can sweep under the carpet – thinking that it will magically disappear. The smart solution here is to manage your credit sensibly so that you can boost your score and get it back on track before you move your business to the next stage.

In this guide, we explore the best ways to secure business financing at any credit score.

Know where you stand – Start by checking your Latest Business Credit Score 

Before you start exploring financing options, you should know your current credit score and what it means for your funding. Knowing your latest business credit score will help you set realistic expectations on the types of financing available to you.

How to check your business credit score for free?

Fortunately, checking your business credit score is easy and hassle-free. Once you get your credit report, take a closer look at it. Check for inaccuracies. If you notice any errors, report it to the relevant credit bureau and get it rectified. The next step is to understand what your credit score is telling you.

If you have a good credit score (750 or more), you can quickly secure the required funding. Compare the different lenders on the market and approach the right lender who offers you the best deal on a business loan.

So, what to do, if you have a low or bad credit score? Does that mean you can’t secure a business loan?

No! It’s not all bad news. If you have a bad credit score, then you have two options:

Option 1: Wait for some time and try to get your credit score back on track. This involves settling outstanding debts, clearing credit card bills, and paying EMIs on time. It’s a slow process, but it is sure to pay you in the long run. Once you have boosted your credit score significantly, you can approach traditional lenders like banks and NBFCs for a business loan.

Option 2: Try to get your credit score back on track while simultaneously exploring other alternative funding options. This is the most sensible choice and the one we highly recommend. Having a good credit score is beneficial for your business in several ways. It not only helps you secure the right funding but also improve the trustworthiness of your business among vendors, partners, and other stakeholders.

Now that you have a good grasp of your business credit score and what it means for your funding chances let’s explore alternative ways to secure business funding.

Look Beyond Business Loans from Banks: Alternative Ways to Fund your Business

  • Business Loans from Online Lenders

Thanks to advances in digital banking, today, there are plenty of digital and P2P lenders on the market. These lenders have lower eligibility requirements, making it easy for businesses with poor credit scores to secure funding. So, what’s the catch, you ask? Higher interest rates and fees.

When compared with traditional lenders like banks, online lending portals have a higher interest rate. Also, they consider your credit score to evaluate your interest rates. So, you may have to pay higher interests and fees to secure the required funding.

  • Government-sponsored Business Loan Schemes

The government of India has launched several innovative loan schemes to help MSMEs and encourage entrepreneurship. For example, under the PMMY (Pradhan Mantri MUDRA Yojana), eligible businesses can borrow collateral-free loans up to Rs. 10 lakhs. Another alternative scheme is the CGTMSE (Credit Guarantee Trust for Micro and Small Enterprises). Under this scheme, eligible borrowers can avail of loans up to Rs. 1 crore without any collateral. Check out the different govt-sponsored schemes for businesses and apply for the right one.

  • Opt for Secured Loans

Secured business loans are when you pledge a collateral against the amount borrowed. This reduces the risk borne by the lender. So, if you have collateral to pledge, then you can opt for secured business loans. Besides having lower eligibility requirements, secured loans also have lower interest rates.

  • Line of Credit/Overdraft

If you own a credit card, you probably have a basic idea of how an overdraft/line of credit works. LOC/OD gives you a credit limit. You can borrow money any number of times until the limit is reached. Once you repay the borrowed amount, the credit limit re-opens, and you can borrow again.

If you have a long-lasting relationship with your bank (the one where you have your current account), you can easily qualify for a LOC/OD. However, a word of caution – just watch out for the high-interest rates and fees before you apply for one.

  • Venture Capitals, Angel Funding, Crowdfunding

Business funding doesn’t mean you have to borrow. There are other options, especially if you have a rock-solid business plan. You can get investors to fund you. Here are some of the popular options:

Crowdfunding – It’s one of the latest and popular business funding options. To obtain funding via crowdfunding – the only requirement is that you have to convince your audience to contribute to your business. They either pre-book your product or make a donation to your business. The most significant benefit of crowdfunding is that you don’t have to repay the money you raise.

But, the catch here is that crowdfunding doesn’t work for all businesses. It’s most suitable for product-based companies with novel and flashy ideas. Another drawback is that it can take a long-time to raise the required capital. Hence, it’s not ideal for businesses that require funding ASAP.

Angel Investors – These are high-net-worth individuals who are eager to invest in upcoming startups. They also offer mentoring along with investment. The catch here is that angel investors expect a share in your business in the form of equity.

Venture Capitals – These are professionally managed investment firms that invest in startups with potential. VCs are ideally suitable for businesses that have moved beyond the startup phase and are generating revenue. The catch here is that VCs expect you to generate returns on their investment within a short timeframe. Also, you lose complete control over your business.

  • Borrow from Friends and Family

As a business owner, you can ask your friends and family to lend money to your business. Your friends may not care about your business’s credit score. However, they are likely to lend only when they believe in your business and your ability to repay. Also, it has the potential to ruin the relationship if you fail to repay it on time. So, evaluate the pros and cons before approaching your friends and family to fund your business.

Avoid Borrowing Personal Loans to Fund your Business

We want to quickly point out that though personal loans are readily available and easy to secure, they are not the best way to fund your business. It’s always recommended that you keep your personal and business finances separate. Also, personal loans come with high-interest rates and can lead you into a debt trap if you don’t repay it on time.

Credit Scores are Only One of the Many Factors.

Though your business credit score plays a crucial role in determining the chances of securing financing, there are several other factors that lenders evaluate like:

  • Business revenue
  • Collateral
  • Cash flow
  • Years in business
  • Debt load
  • Industry/sector of your business

Suppose you can show good revenue, offer collateral, and have been in business for many years. In that case, it’s easier to secure financing.

Evaluate your Situation & Apply for the Right Financing of your Choice

As you can see, there are several factors at play in securing financing for your business. So, we highly recommend that you evaluate your business situation. Start by checking your current business credit score, compare the funding options available to you, and then apply for the right one.

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