How To Get A Business Loan With Bad Credit
Are you wondering how to get a business loan with bad credit?
Well, you’re not alone. Most businesses today – small, medium or large scale, normally experience challenges with accessing working capital loans from traditional lenders even with their stellar credit scores, so for a small business loan with bad credit, getting a business loan from a traditional lender is near impossible. Bad credit is a prevailing problem plaguing a large percentage of small businesses today, and it is primarily due to the financial crisis which occurred several years ago. Many small business owners are stuck in a deep pool of bad credit, seemingly unable to get out because of several factors ranging from slow business, loss of revenue, and falling behind or defaulting on loan payments.
Bad credit is basically described as your past failure to fulfill your credit agreements and the inability to get approved for new credit. Usually, your credit account history is collected by credit bureaus and compiled into what is called a credit report. The information on your credit report is then used to calculate your credit score, which is a three-digit numerical snapshot of your credit history at any given time. Credit scores generally range from 300 to 850 and lower credit scores is an indication of bad credit. This typically happens when you have had multiple cases of negative events such as late payments or loan defaults, bankruptcy, repossession or foreclosure, and so on, all happening within a short period of time.
The consequences of bad debt can be dire for small businesses and could cripple their corporate existence – lenders become wary of lending to you because they fear you may be unable to pay back on any credit card or loan you are given. Sometimes, if in any case you do get approved, you will be charged a higher interest rate than other borrowers who have good credit scores. Lenders devised this strategy as a way to compensate themselves for the risk of loaning money to you. Asides from that too, they may place stringent terms on the business loan. If you happen to find yourself in this situation, it could seem that the odds are stacked against you, however, there are several alternative ways that you can use to access small business financing and get your credit application approved even with bad credit. Some of these ways are based on various factors other than your business score, so you might still have a good chance at securing the business loan with reasonable interest rates and implement them proficiently.
Here is how to SECURE A BUSINESS LOAN WITH BAD CREDIT:
HAVE A PLAN
Before you apply for a business loan with bad credit, you first need to take a holistic look at your business as to why you need the money. Thoroughly review everything about how your income and expenses flow throughout the whole year to know how much funding you really need, so as not to borrow too much or too little. It would enable you manage your finances better and build your credibility with lenders. Even though you have bad credit, lenders will be more impressed at your seriousness and that your plan explains how you’re working to improve your business credit. Be sure to include fact-based projected revenue as well in your plan.
EXPLORE OTHER CREDIT FINANCIERS
You can improve your own creditworthiness by partnering with another individual or business with great credit. Such a person or business is low risk and can be co-signatories to your business loan, thus making your business less of a repayment risk to lenders despite your bad credit. This option is desirable if you’re comfortable with having a formal business partner with some control over the business. However, if that doesn’t seem convenient for you, you might also try considering a small business term loan.
CONSIDER AN SBA BUSINESS LOAN WITH BAD CREDIT
The Small Business Administration (SBA) is a federal agency that is trying to provide ways to help struggling small businesses obtain the funding they need to survive and grow. Businesses with bad credit can qualify for traditional bank loans with the backing of the SBA. They offer several types of small business financing including categories where borrowers can loan up to $35,000. They also provide government aid programs that can help you sustain or expand your business, including special programs for women, minorities and veterans. Note that SBA loans are funded and managed by local financial institutions, and not all banks qualify as a Preferred SBA Lender. They differ in lending criteria and other details, so you’ll have to check properly for those that suit your needs. Also, these loans can take up to 3 months for approval and lots of time consuming paperwork.
This could be the least convenient decision for any business owner to take but it is a very creative way for offsetting your bad credit. Collateral has the tangible value that the lender can sell if you default on the loan repayment. With your business at stake, it is an added incentive for you to repay on time, which will ultimately boost your future business credit. However, note that lenders do not accept the full monetary value of your asset as security, they usually discount it. So you will need to deposit a collateral that is worth more than the business loan. Not every business has the ability to do this or is willing to over-leverage for the sake of available capital.
CONSIDER NON-TRADITIONAL OR ALTERNATIVE LENDERS
Non-traditional or Alternative lenders offer small businesses quick and easy business loan processing even with bad credit. Their mode of operation is usually private and you can even apply for a loan from the comfort of your home, and securely on your personal or business computer. Many small business owners are of the thought that they are stuck with accepting high interest rates, high collateral and small business loans because of their bad credit. However, non-traditional lenders can creatively guide you to access ways that can minimize your risk and help you secure the business loans you need without jeopardizing your business. They typically offer working capital loans with a fixed cost to the loan. Some of the larger more established lenders will provide lines of credit and invoice factoring but these come with minimum FICO scores of 530+.
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