How To Get A Business Loan With Bad a Credit
Companies that need capital to reach new heights will find a business loan to be one of the best sources of funding for any SME - but can you apply for one with bad credit?
- As an entrepreneur you may be applying for financing on behalf of your business and using your personal name and credit score to secure a loan.
- If your FICO score is less than 650 you may find it challenging to get approval - but there are strategies you can use to secure the funding you need.
In this article we’ll take you through several alternatives for business owners with bad credit. Let’s start by looking at the various options that are available.
Your Options
There are several things you can do to increase your chances of being approved for a business loan. Here are some of the most effective strategies for borrowers with weaker credit histories and scores.
Write A Business Plan
Every journey needs a solid roadmap. A business plan outlines your company’s reason for existing, states the goals you plan to achieve, and provides in-depth information about your products and services, competitive landscape, and other valuable information.
- This document won’t only keep you on track as you pursue your business goals. It’ll also give lenders confidence in your ability to manage your money and theirs.
- A comprehensive plan can make up for a poor personal credit score in your lender’s eyes, helping prove that you’ve learned from past mistakes and won’t repeat them in the management of your SME going forward.
- If you’ve never written a business plan before, there are excellent free resources available from SBA.gov and Entrepreneur.com that outline exactly what information should be included.
Provide Collateral
If you have an asset that you can pledge as a loan guarantee, you’re more likely to have your application approved. This is simply because your lender has something of value that they can seize and sell if you fail to make your loan repayments.
- If your business owns assets like land, buildings, or equipment, you can use this as collateral without involving your personal assets.
- If you do choose to pledge your home or vehicle as security for a business loan, you’ll want to ensure that the repayments are made on time to avoid risking foreclosure or forfeiture of your assets.
Find A Cosigner
Two signatures are sometimes better than one. If you’re able to find someone with a good credit score who is willing to cosign your business loan application, you may stand a better chance of success.
- A cosigner takes responsibility along with you for repaying the loan. If you should fail to make payments, they will be obligated to cover the loan installments.
- The shared liability that a cosigner takes on means that this type of arrangement isn’t something you should ask of just anyone. You’ll need to know the personal well, have a trusting relationship with them, and explain their obligations fully before you proceed.
Types Of Bad Credit Business Loans
Now that we’ve covered some of the ways you can improve your chances of loan approval, you may be keen to apply. Here are some of the most popular business loans available.
- Business Credit Cards: This type of credit is a good option if your business is still in the process of establishing a credit history. By charging small amounts to your card and repaying on time, you’ll boost your business credit score - as long as your card provider reports payment history to Equifax, Experian or TransUnion.
- Short Term Loans: If you need a lump sum and would like to pay it down over a period of 6 to 24 months, this could be a good option for your business. You can sometimes opt to repay the loan in daily or weekly payments if you prefer.
- Lines Of Credit: These are similar to short term loans except they provide revolving credit instead of fixed insta;lments.
- Invoice Factoring & Financing: Some lenders will pay you 80%-85% of the value of invoices you’ve sent out (accounts receivable) and collect the payments themselves. You can also borrow against the value of your invoices and repay the loan when your invoices are paid.
- Equipment Loans: You can finance a new piece of equipment by using the asset itself as collateral. This may lower the APR on your loan.
Conclusion
Business loans aren’t only for people with stellar credit. You can boost your chances of success by providing collateral, drafting an in-depth business plan, and approaching a cosigner for assistance.
With a higher likelihood of approval going into the application process, the only item that remains is identifying the suitable match for your business’s borrowing needs.
