No credit check small business loans can seem like a dream come true, especially for new entrepreneurs who don’t have a lengthy credit history. But the truth is, most business lenders will run a credit report before approving your application for financing.
While there are loan options that don’t require a credit check, those who do run credit checks generally favor applicants with higher credit scores and a longer credit history. They also look at the other “five C’s” of the borrower: capacity, capital, character, collateral, and conditions.
In other words, if you have a strong business plan and can prove that your business will be able to repay the loan on time, most lenders will consider your request for financing. The good news is that there are alternative ways to fund your business that don’t involve a credit check, including grant funding and equity-based crowdfunding.
A popular option is a line of credit based on invoice collateral, which typically includes your receivables and account balances. These lines of credit are available through a variety of online lenders, such as Payability and Fundbox, and range from $1,000 to $100,000 at rates starting at 4.66%. This type of financing often has more flexible requirements than conventional business loans and can be more quickly approved.
Another alternative is a factoring company, which purchases your outstanding accounts receivable for cash. They don’t usually review your personal credit and can be a great choice for ecommerce businesses that are waiting on payments from clients but need to make payroll. The drawback of these financing options is that they can often come with high fees and your personal credit might be considered when determining eligibility.
Many entrepreneurs want to avoid a credit check because they don’t want the hard inquiry to impact their personal credit scores, they don’t have the required credit score to qualify for most traditional loan products, or they would rather separate their personal and business finances. However, it is important to understand that most business lending options do run a credit check and most will require some form of personal guarantees for the loan.
As a result, most small business owners with bad or no credit will still have to turn to alternative options for financing their businesses. But, if you’re willing to work harder on your financial health and do the research, you can find funding that will allow you to start or grow your business without having to worry about the consequences of a credit pull. Just be prepared for higher rates and fees and short repayment terms. You might also need to consider whether your lender reports loan payments to the three major credit bureaus. If they do, you may be able to build or repair your credit by making on-time payments on the debt.