How new founders can get working capital with bad credit

Steph Jouppien
Steph Jouppien
excited startup founders looking at laptop

When you hear “fail fast, fail often”, are you inspired or do you cringe?

Some of history’s most successful failed so hard, so fast, and so often that they found themselves deep in debt. Walt Disney and Henry Ford are both famous and influential names. But did you know that each of these founders crawled back from the brinks of bankruptcy? Less known is Lydia Pinkham, who pulled her family out of poverty by taking a giant risk during the Depression and packaging her own “women's tonic” - still on the market today. 

With only an 18% success rate, first time founders in particular have the odds stacked against them. It shouldn’t come as a surprise that sometimes great business ideas fail and entrepreneurs are left with a less than favourable credit rating.

Maybe like Elon Musk, you launched a next-level concept that didn’t go quite as planned. Or perhaps you simply ran up your college credit card as a member of the happy hour club. In either case, you can still leverage business funding with little or bad credit and launch your business successfully.

I have bad credit. Can I still apply for a working capital loan? 


A perfect credit score is 800. But here’s the kicker: not everyone starts at a perfect score of 800. Before getting any form of credit, you have to prove your credibility by “building it”. This means you have to take on some form of debt in order to access money down the line. First credit cards are often given to young, irresponsible adults. 

Let’s say these young, impressionable lenders have a next-level idea for an e-commerce business but failed to repay their credit card bills throughout college. When they go to the bank with their idea and revenue reports to ask for money, the only thing the banks look at is their credit history. Their credit history shows repeated failures at repayment, so the bank labels them a “high risk” for defaulting on future payments. Access to funding: denied. 

Unfortunately for founders, accessing funds with bad credit is a tricky and time consuming process. Having an excess of working capital can help you scale your venture by using your future profits to grow today

Why working capital matters more than you realize


Having an excess of working capital allows you to prefill your inventory in preparation for holiday demand, and even form healthier repayment habits. For instance, a cash injection can pay for your invoices via invoice financing so that you can maintain healthy business relationships with your contractors and suppliers.

Unlocking extra cash flow may seem like the solution to all your business woes, but not every business should pursue funding. Having extra working capital is great for those who want to responsibly invest using credit. But business owners who look for working capital loans should have an idea of what they need the cash for, as well as have the capacity to repay it.

If your business is already making consistent profit, you’re perfectly primed to access working capital funding.

Where can you get cash with bad credit? 


Contrary to popular belief, you can get business funding with a poor credit history. Here are some of the options savvy entrepreneurs have used to grow their businesses.

Banks

Banks offer a wide variety of loans both for business and personal uses. Traditional bank loans are typically harder to access with a poor credit score. They usually require either a personal guarantee or credit check, meaning you need to have a credit score of roughly 670 or more to be approved for funding. In most cases, you need to have three years of solid credit history (a nearly impossible credit standing for young entrepreneurs).

If you do have bad credit history, there are instances where you can sign a personal guarantee so that you’re personally (and legally) responsible for repayment. That being said, a personal guarantee can still hurt your credit score and make future opportunities for funding even more difficult.

Alternative financing companies

Alternative financing is flexible, fast funding for businesses considered less rigid than your standard bank. Typically, alternative financing companies are privately owned businesses that leverage technology to assess certain aspects of your business. Instead of solely looking through your credit history, alternative financiers will look at the full picture, including your profit, how you spend your money, and the speed at which you’re scaling.  

Before you get excited—not all providers are as flexible as you’d expect. Some alternative financing businesses still expect borrowers to have a credit score of roughly 600 or more. 

The upside of alternative funding is that if you can secure it, it’s fast and flexible cash. In some cases, your business could be funded within 24 hours. You can use this funding for a variety of long-term/high-cost Investments, or short and sweet, refillable credit instead. 

Credit card providers

Contrary to popular belief, you can get a credit card with poor credit. Credit cards are great for short-term costs. At the very least, some of your balance must be repaid each month. In some cases, if your credit is poor, you can prepay your credit or get a secured card with a down payment. Just keep in mind that any credit card, whether secured or personally guaranteed, can still affect your credit score.

Private donors

Private donors are connections who trust and believe in you and your business. Private donors may be businesspeople themselves with an entrepreneurial background, people you don’t personally know through a crowdfunding platform, or simply your friends and family. In some cases, you don't even have to pay back cash donations.

If you stay in good standing with your donors, you can build strong relationships and word-of-mouth credibility about your professional endeavors. If you fail to pay back money from a private donor it may not hurt you financially (as long as you don't sign a contract), but it could badly bruise your reputation and make future funding difficult.

VC firms

If you have a solid business idea, venture capitalists will likely want to invest. VC firms typically look to fund businesses with high potential profitability and far-reaching market potential. If you have a good idea and can comfortably prove business viability (likely from the revenue you’re already making), VC’s could be your golden ticket to funding. But buyer beware: the downside is you give up control and ownership of your brilliant business. So ponder this option carefully before you decide on taking money from a VC firm. 

Angel investors

Angel investors are similar to venture capitalists, with a few key differences. Angel investors are a single investor that can give you money in exchange for partial ownership of your company. Just be sure to do your research into this person and vet their credibility. Not only do you want to make sure you know who you’re dealing with, getting cash from angel investors can be a slow and arduous process. 

In addition, the average amount of funding tends to be less than traditional VC firms. To avoid any issues with angel investors, have up front conversations about funding amounts and roles within how the company is led. Remember, once you join forces with an angel investor, your business decisions have to be agreed upon by both parties.

How to get capital for your business (even with bad credit)

Some of the wealthiest people in history have made poor financial decisions. But having no credit or filing for bankruptcy doesn’t make you a failure. Sometimes it simply means people are more open to taking on risk than others. Without risk takers, movers, shakers, and spenders, we wouldn’t have Mickey Mouse, the Foreman Grill or niche womens’ supplements.

At Clearco, we offer fast and flexible capital for founders. We don't require you make a personal guarantee, and you don't have to do a credit check to grow your business. Instead of the mistakes you made back in college, we look at your growing business without the bias. This means we calculate your monthly revenue, ad spend, and other indicators of current success (the keyword being current).

Getting an estimate is simple—just follow these 3 steps:

  1. Enter your business details into the calculator for an instant funding estimate
  2. Connect your required business accounts so we can assess your eligibility
  3. Find out how much funding your business qualifies for and get ready to grow

As long as you stay in good financial standing, we partner with you throughout each stage of your business growth. Connect your account here.

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