I have received several emails from visitors asking how they can get a loan to start their business when they don’t have good credit.

The reality is that if you don’t have a good credit, you may have a tough time getting a loan from financial institutions, even from SBA. SBA requires a number of factors to avail of their loans, and one of them is good credit history (see SBA Basic requirements). Your chances become even dimmer if you have no collateral or say that you are going to start a home-based business.

Many banks and financial institutions see home businesses, more so if online home businesses, to be high risk and thus avoid lending money to these industries. I remember going to the bank several years before with a business plan that I’ve worked on for a couple of months. I did the research, crunched the numbers, and defined my strategies. I had excellent credit. But the moment the banker heard that I was to start a home-based online business, he did not even look at my supporting documents and business plan. He just told me to come back a week later, and I was not surprised to receive a letter disapproving the loan.

If you don’t need a big amount, and you have available credit card funds, then you can use credit card to finance the business. Credit card requires no collaterals but it can be an expensive source of funds. Resort to them only after trying to get a loan from your parents, family and friends and couldnt get any.

For ideas on where to get startup capital, visit our Getting Financing channel