Funding your business idea with a business loan with no credit check is possible, but the interest will likely be very expensive. Credit history-free business loans are offered through several lenders like PayPal, Shopify, and Square to help entrepreneurs realize their startup goals.
What Are Credit History-Free Business Loans?
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90% of businesses worldwide are considered small businesses. However, according to the Bureau of Labor Statistics, 20% of businesses fail within their first year and 50% by the fifth year. What can you do to ensure your startup will be among those that are successful?
One of the most widely quoted reasons business owners give as to why their business failed is the lack of capital or funding. But, if you’re a startup with no credit history or you have poor credit, securing a traditional business loan for your company could be a nightmare. While the alternative is more expensive, it could definitely be worth it in your situation.
Credit history-free business loans allow you to fund your business idea without worrying about your credit score. This type of loan has become more popular than ever since the Small Business Boom during the COVID-19 pandemic. Some business owners might want to avoid a credit check because they don’t want to affect their personal credit score, while others know that their poor credit scores will disqualify them from the loan.
Startups and new businesses with few employees are more likely to require a credit check. Fortunately, unlike traditional loans, No credit check loans are based on your business’s current revenue and potential earnings instead of your personal credit history. So, even if you have a low credit rating, you can still bring your business idea to life.
Linking New Business Funding to Business Goals
Securing the right funding for your business can make a huge difference in the trajectory of your company. Entrepreneurs request loans for several reasons, including starting a business, launching a new product or service, repairing property or equipment, or additional funding to cover a temporary decrease in revenue.
If you’re considering applying, ask yourself what your goals are for your business and how you see this loan helping to achieve them. The following are three things you need to consider before applying for new business funding.
- How Much You Need – How much do you need to achieve your goals? Every lender has an amount they’re willing to offer, which can help eliminate lenders that won’t meet your needs. Therefore, the first step before applying for a loan is to determine precisely how much funding is required to meet the needs of your business.
- Your Timeline – How quickly do you need this money? Some business expenses are more immediate than others. Likewise, some lenders process applications faster than others. Determine your immediate funding needs to determine which lender is the better option for your company.
- Your Budget – How much can you afford to repay? You need to calculate the repayment amount for your potential credit history-free business loans to determine which falls within your budget while providing the best deal for your small business.
Options for New Business Funding
Several eCommerce platforms offer financing to startups without requiring a credit check. Square, PayPal, and Shopify are three of the most popular companies that can help you secure the funds you need to get your business venture off the ground.
1) Square Loans
Businesses that use Square as their POS provider could qualify for a Square Loan. You can apply for a loan if your business processes at least $10,000 or more per year through Square. Your eligibility is based on customer mix, payment disputes, and payment frequency, among other factors.
Loan amounts can range from $300 to $250,000 and are automatically repaid through a percentage of your daily credit card sales through Square. This fee is calculated based on the size of your loan and the number of transactions processed.
If your Square Loan is approved, you will receive the money instantly with a Square checking account or within three business days into your linked bank account.
2) PayPal Working Capital
If your small business uses PayPal, this offer could be the right option for you. Paypal offers its users the PayPal Working Capital loan without a credit check.
For your business to qualify, you must have either a PayPal Premier or Business account for at least 90 days. You’d also have to process at least $20,000 in annual PayPal sales with a Premier account and at least $15,000 if you have a Business account.
If your loan is approved, your business will receive the funding it needs within minutes. This loan offers flexible payments and a fixed fee based on the loan amount, repayment percentage, and your PayPal transaction history.
3) Shopify Capital
Shopify sellers who don’t qualify for a traditional business loan could benefit from Shopify Capital. This form of startup financing without credit check also doesn’t have restrictions on the amount of yearly revenue or length of time operating as a business. The only requirement for this loan is to have been selling with Shopify for at least 90 days with consistent sales.
Sellers using Shopify eCommerce and/or Shopify POS could receive a loan from $200 to $5,000,000, based on sale volume and business risk. This loan is repaid as a percentage of daily sales with a 12-month repayment period.
The downside to this particular loan is there’s no way to apply. Unlike other companies that allow interested customers to apply for a loan, Shopify notifies businesses once their account is eligible to apply for financing.
Practical Tips for Startup Financing Without Credit Check
While there are companies that offer loans with no credit check, most lenders will request a credit check to gauge your ability to repay your debt. However, with smart planning and forethought, you can still get approved for startup financing without credit check. The following are four tips to improve your application.
- Improve your business plan – A strong business plan that shows your company’s revenue potential can help you to stand out to lenders. Your business plan should highlight your business goals, strategy, and expected growth over at least five years.
- Increase your downpayment – If the lender requires a downpayment on the loan, offer a higher downpayment if you have enough capital. This will indicate your company’s ability to repay its debts and could lead to better terms and faster approval.
- Compare multiple lenders – You won’t know if you’re getting the best deal for your business until you compare lenders. Pay close attention to the interest rates, additional fees, repayment terms, and requirements of each lender to determine which is the best offer.
- Offer collateral – If your business owns property or equipment, this could be used as collateral for your business loan. It’s a lot riskier to take out a secured loan since the lender could claim your asset if your company cannot repay its debt. However, a collateralized loan would offer you better interest rates and reduce the likelihood of a credit check.
What Are Your Alternatives?
If you don’t qualify for a traditional business loan but aren’t convinced that credit history-free business loans are the right option for you, there are other options for new business funding.
Small Business Grants
Think of a small business grant as a gift to your company from an agency that believes in your idea. Business grants are available through federal and state agencies, private companies, and other organizations, some offering funding specifically to small startup businesses. While every organization and agency has its own criteria to qualify for a grant, good credit isn’t usually one of those requirements.
Although a grant might seem like the perfect solution, these are highly competitive, and you would need a very strong application to stand out from the other applicants.
Crowdfunding
Crowdfunding is a popular way that startups have raised funds for many years. Rewards-based funding is a model that offers potential donors incentives like a special product or service for contributing to your business. Through equity funding, contributors can become investors in your company and receive a small stake in return for their contribution.
While this can be a great solution to raise funds and increase brand awareness, crowdfunding usually takes place through an online platform that charges fees that are taken out of the investment your company receives.
Final Thoughts on Startup Financing Without Credit Check
Starting a business is hard. If your credit score or lack of credit history is holding you back from qualifying for a traditional business loan, you should consider improving your credit score. This is a long process that could take months or even years of consistent and smart financial decisions to accomplish.
If you can’t wait until your credit score has grown, there are several credit history-free business loans available through reputable companies that you can choose from. Do your research and consider this option for your startup’s financial needs.
