Small Business Credit Options for Entrepreneurs with Bad Credit

You've heard the complaint before. Entrepreneurs say banks only want to lend money to people who already have a lot of money.

Now there is an alternative source of startup funding that can help startup entrepreneurs with no credit or bad credit. Plus, the interest rates charged on these loans are usually much lower than standard credit card rates.

This is not a fantasy or a hoax but a part of a world-wide movement that helps empower enterprising individuals to succeed in business.

The inspired concept of providing credit to startup entrepreneurs who normally would be turned down by commercial banks was advanced by 2006 Nobel Prize for Peace co-winners The Grameen Bank and Muhammad Yunus.

Today, micro-lending is a multi-billion dollar industry with active lending operations in Asia, South and Central America, Africa and North America. In the United States, micro-loan organizations provide loans as small as $500. With successful repayment and business progress, entrepreneurs can continue to borrow up to $35,000, again at favorable interest rates.

In addition to granting loans, most micro-lending organizations offer low cost or free business development training courses for prospective or active borrowers. Some larger organizations provide skilled coaches or help connect borrowers to business mentors with expertise in marketing, product development, accounting and sales.

From my pro bono teaching work with micro-loan organizations, I know that too many loan requests are denied simply because entrepreneurs submit incomplete applications or have not yet thought through the specifics of their startup business.

Here are some tips to help you speed through the application process.

  • Start simple. Startup entrepreneurs often take on too many new product or service initiatives all at the same time which only increases cash requirements and business risk. Pick one concept that you can sell quickly and at the highest profit margins.
  • Estimate your startup costs. Estimate how much money you will need to set up your operations, solicit first customers, produce your product or service, and process payments from customers. Be practical and detailed.
  • Define the loan purpose. Make a list of how you will spend the loan proceeds. If you want to purchase equipment with a loan, detail the brand and cost. And yes, you can buy used equipment with loan proceeds.
  • Prepare a business plan and projections. Not all micro-loan organizations require a business plan for loan approval; however every organization will ask you to prepare a monthly projection of your first year sales, costs and operating profitability. Your local micro-loan organization will then work with you to help you evaluate if your proposed business can afford to repay the loan.
  • Know your target customer. There is a difference between a novelty item that briefly captures our attention in a store and something of value that customers are willing to buy hopefully more than once. Expect micro-loan application reviewers to ask you why you think you can sell your product or service to prospective customers and how your company's pricing compares to competitors. These questions are not designed to intimidate or discourage entrepreneurs but help improve business planning.

Micro-loan organizations are excellent financing partners for first-time entrepreneurs who want to learn how to start a business within a supportive and friendly environment. Many cities are home to multiple micro-lending organizations so it is worthwhile for entrepreneurs to compare the loan support and education programs offered by different programs.

Here's one last business tip about micro-loans. From a tactical standpoint, a micro-loan is a low cost and relatively easy way for entrepreneurs to repair a tattered personal credit history. Successful repayment of a small micro-loan can make it easier for emerging businesses to receive more credit in the future from vendors and large banks. This is how a small startup can accomplish big things in the future.

Susan Schreter is a 20-year veteran of the venture finance community, MBA-level educator and policy advocate for small business owners. Her work is dedicated to improving startup operating performance with reduced personal risk to entrepreneurs. She is the founder of www.takecommand.org, which offers the largest centralized database of regional and national small business funding sources in the U.S., including angel clubs, micro-finance lenders, venture capital funds and more. Follow Susan on Twitter @TakeCommand

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