Need a loan? Don't let bad credit get in the way
The micro-finance industry is helping entrepreneurs bypass banks.
Jennifer, Kent, W.A.
Dear FSB: I have my own gift-basket business and a janitorial business that I run with my husband. We are having trouble securing business capital. Our business is an LLC and we have a tax ID number and a business account with deposits averaging at least $7,000 a month. We are in the process of repairing our credit due to fraudulent information. Where can we find and secure a business line of credit that doesn't require a personal guarantee?
By Candice Zachariahs, Fortune Small Business Contributor
A number of small businesses find themselves in your situation every year. The good news is that there's a small network of lenders out there with services attuned to your needs.
Microfinance – a concept that first gained popularity in Bangladesh – is now spreading its branches in the U.S. Organizations within this segment provide loans to entrepreneurs and small businesses that cannot access credit from banks and other financial institutions. Microfinance institutions in the U.S. include Accion U.S.A., Grameen America and Micro Business Development. A number of these organizations have a special focus on minority communities like women and immigrants.
"These are relationship-based loans," says Jill Stephens, vice president, lending at Accion New York. While the organization does require a personal guarantee, it looks beyond a person's credit history when deciding on who to lend to. For instance, documents that prove you are contesting any fraudulent information that has hurt your credit, or proof of good standing on other accounts will be considered.
Apart from the loans, micro-finance organizations often provide additional support in the form of free workshops that cover areas like marketing, finance and strategic planning. Some may also offer one-on-one consulting.
On average, Accion makes loans of about $8,000 for a period of five years. Interest rates, says Ms. Stephens, are usually about 14.9 per cent – higher than a bank and either on par with or a little lower than a credit card.
Apart from such institutions you should also look at what resources are available within your community. A number of community funds make loans to individuals who are unable to use regular channels. The loans help "bridge the gap till you can repair your credit," says Rick Thorpe, a counselor at the Washington Small Business Development Center. Mr. Thorpe advises contacting your local chamber of commerce or the Small Business Development Center in your community.
Another option you could consider, says Mr. Thorpe, is placing an ad in the newspaper under business opportunities. The ad could simply say that you're a small business in need of temporary cash offering low risk and a good return. With the stock market in such a mess there are investors willing to bail out small businesses for a good return, he says.
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From Tiffany, MA For the business owners who are risking their personal credit to fuel their own business and need capital, I am a broker at Numa Financial Group. We offer unconventional financial products for business owners who need to meet their capital needs, and we can get them the capital they need in as little as 72 hours. Some of our products don't even look at your credit score, and you won't even have to risk or collateralize any of your personal assets or go through red tape normally experienced at a bank. If you are interested in having a line of credit whenever you need it, you can contact me at tlien@numafinancial.com.
I run VA Loan and I think the banks should start lending