Applying for a business loan is stressful in the best of times. But having bad credit will definitely add to the stress. Here we are giving tips on getting a bad credit business loan and ways to raise your business credit and get the approval you need to grow your business.
1) Lender’s Credit Score Requirements
The best way to discover if lenders will provide you with a loan for business owners with bad credit is to determine the requirements of the lenders and how they assess your credit score.
If your score is under 500, you might have difficulty convincing lenders that you can be trusted with a loan. There is no point in applying for a loan with lenders where you do not meet the requirements.
It will just be a waste of your and the lender’s time. Determine ways to increase your credit score and only then apply for a business loan. Alternatively, you could use other sources of funding if you find it difficult to meet the requirements.
2) Have A Concise Business Plan
Regardless of your credit score, lenders want to see a detailed and clear business plan that shows the growth of the business. But this can be even more important if you have a bad credit score.
To convince them, you need to include how you plan to pay back the business loan and that you will have the extra expense under control. Information that you need to show is your business’s monthly sales earnings.
A lender will be more likely to regard your business as viable if you are able to show financial growth over time. On the contrary, if your financial situation is volatile, lenders may be hesitant to offer you funding.
Providing a plan on how you are going to use the funds will also increase confidence in the lenders. Show what you plan on purchasing and how that purchase will grow your business. Try to include as much detail as possible.
Use your current statistics to show how the new equipment will increase your business’s financial situation in the long term. This could be by serving more customers are providing a more efficient product.
3) Have A Plan In Place For Higher Interest Rates With A Bad Credit Business Loan
The biggest benefit of having a good credit score is the low-interest rates. So it makes sense that if you have a low credit score, you are going to need to be prepared for the higher interest rates.
After all, having a low credit score tells lenders that you are at a higher risk of not repaying back the loans.
Understanding this, put a plan in place to account for a higher interest rate. You will more likely be approved if you show that at even a higher interest rate, you will be able to repay the loan without too much hassle.
It might be better to put getting a loan on hold than acquiring a loan that you might default on. Considering that you will not improve your credit score by missing loan repayments.
4) Look At Ways To Improve Your Credit Score
If you are aware that for your business to succeed, you are going to need a loan. The best thing to do is to improve your credit score before making the application.
So start with finding out what your credit score is and if there are any inconsistencies in your business credit report. Report anything unusual to a credit bureau and hopefully, your score will be adjusted.
Improving your credit score will not be done overnight. Like all good, healthy relationships, it will take time to prove financial trust and responsibility. It might mean that you will need to grind it out while you wait for a loan.
But this is better than defaulting and causing more pain in the future.
It is imperative that you pay your bills on time in order to improve your credit score. Set up monthly reminders, or use Apps. Restructure your budget to ensure that you have enough funds on repayment day.
5) Bad Credit Business Loan Alternatives
If you are short of cash in the short term and don’t know if you qualify for a business loan with your bad credit, there are alternatives. While you wait to improve your credit score, you could apply for a merchant cash advance.
This type of business financing allows you to receive a lump sum. In exchange, they will take a percentage of your personal credit card sales. Therefore, they are usually not interested in your low credit score and only consider your credit sales in the short term.
A benefit of a merchant cash advance is that your repayments are based on credit card payments. It will help with slow months as you will repay a lower amount compared to busier months.
While waiting for your credit score to improve, it may be beneficial to ask family and friends for a loan to keep you going. This is not always the best scenario to be in, but it could just give you enough time before applying for a business loan.
It is still important to draft up a contract between both parties and have a lawyer be the third party. Also, document all transactions, you can never have enough proof. That way if there is any wrong, both parties are accountable.
The main disadvantage of these alternatives is that they will not improve your credit score. Therefore, have a strict business plan in place to still provide enough funds to build up credit.
Business Loan Alternatives If You Can’t Get An Approval
For startup ventures, you may need a business loan to get the wheels turning. Going to the bank isn’t the only way to get the funds you need for your venture. There are other sources that could actually work better for you. Here are some of the business loan alternatives to finance your new business.
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