The Four Best Ways to Use a Bad Credit Business Loan
Bad credit business loans are fit for business owners with a FICO credit score that is between 300 and 629. If your credit score happens to fall into this range, you’ll likely be unable to secure a loan from a traditional lender.
Instead, you could pursue a bad credit business loan to meet your financing needs. These loans are often characterized by higher interest rates, but if you’re in need of financing it might be your best option. In this post, we’ll provide four examples of ways that you can utilize a bad credit business loan to improve your overall operations.
As a business owner, you should avoid creating a cycle of debt. Still, many entrepreneurs acquire debt due to their business purchases. Although applying for a loan to pay off old debt is typically an undesirable option, there are circumstances in which this may make sense.
Using a bad credit business loan to repay old debts might be a good option if the interest rate on the new loan is less than the interest rate on previous loans. Applying for a new business loan can also help your business avoid bankruptcy.
Though a bad credit business loan won’t rescue an insolvent business, it can potentially buy you time while you get your business back on track.
Pay Overdue Taxes
Although owing debt to a traditional lender may be problematic, being in debt to the federal government is usually worse. If you currently owe back taxes to the IRS or any other governmental institution, paying off these debts should be one of your business’ highest priorities.
Debts owed to the government will multiply quickly if not properly managed. Additionally, depending on the nature of your business, these debts can cost you your personal property or even carry criminal charges.
As a small business owner (especially sole proprietors), it can be tempting to spend money that you should be saving for tax purposes. If it is time to pay your taxes and you suddenly realize you’re unable to, a bad credit business loan may provide a temporary solution.
Invest in Equipment
Many small business owners find themselves in a common “Catch 22” dilemma. They need to improve their equipment to increase revenue, but can’t improve their equipment until enough revenue has been generated.
Fortunately, a bad credit business loan may be able to help you avoid this issue. If your business needs a simple equipment repair to get back on track, these loans can be incredibly useful.
Expand Your Business
As your business expands, the cost of producing a single unit typically decreases. Due to this, many businesses if you’re struggling succeed on a small scale, you have the potential to become financially viable once you expand.
Expanding your business isn’t something you should do recklessly, as it doesn’t guarantee profitability. However, it can enable it. With a solid plan in place, a bad credit business loan can help you expand sooner than would otherwise be possible.
Most bad credit business loans are typically available for up to $50,000. Although these loans won’t transform your single enterprise into a multinational corporation overnight, they can certainly help expedite a modest expansion project.
As is the case with most loans, bad credit business loans have both positive and negative aspects. The downsides of a bad credit business loan are that it will likely carry a high interest rate, be for a limited amount, and have non-negotiable terms. However, these loans can also be incredibly useful. For many business owners with bad credit, these loans are the most viable option for paying off old debts and overdue taxes, improving equipment, or expanding their business. If you can conduct research and carefully plan, a bad credit business loan is certainly worth considering.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.