Contrary to what you may think, you are still able to get a business loan even if you have a bad credit. The choices for applying will be limited, but still, you will be able to access a number of lenders. This is possible since these lenders don’t only observe your credit history, but also review other aspects of your business.
Revenue, operating history, potential, and other parameters are what these lenders take into consideration when reviewing your loan application. A bad credit score implies that you weren’t so good at managing your finances in the past or you are a young business. But the economy is constantly changing and so does these rules, which means that there are lenders who are willing to give you loans.
Check your business credit score
To check the status of your business credit score and correct any possible mistakes within this data, use the credit bureau. Inaccuracy tends to happen and if not caught in time, it can negatively affect your overall credit score. There are also companies that can do this for you by reviewing the reports and comparing them with the collected data.
If you plan to take the loan in the future, knowing your current credit score will help you improve it. Also, it will give you an insight into the options you have at our disposal for getting a loan and type of lenders.
Prepare your documents
Although the needed documentation will vary from lender to lender, there are some basic documents you should acquire before applying for a loan. This will include your bank statements – personal and business, net income, general business information, information about your clients, partners and customers.
It would also help to have recommendations and testimonials from the individuals or companies that worked with you or used your services. Not all lenders will include these officially in their decision, but it will give them a more clear picture of you as part of the community.
Consider microloans
If you are a start-up or fall under the specific group of businesses, then you can apply for the microloan. These loans are specifically designed to help thriving businesses from the disadvantaged areas or rural regions. They come from non-profit organizations and have no interest rate, but in turn, these loans are small usually $50,000 or less.
A home equity line of credit
A home equity line of credit is a high-risk option that is intended for business owners who also own a house. Basically, this means that you will use your house as collateral for a bank loan which can sometimes be quite unfavorable.
The market changes and you may get into financial trouble before you pay off your whole loan. In this case, if you don’t pay your installments in time the bank can take your house and sell it to cover your debt. Consider this type of loan only as the last resort and when everything else fails.
Seek investors
Finding investors is one of the options you can use when you have a bad credit score. They may also require to review your financial records and credit score, but are more likely to give you the funds you need. However, keep in mind that investors may have their own conditions which sometimes may not be appropriate for your business.
If this is the case, ask family and friends to give you a loan and thus become investors in your business. Additionally, prepare your offer for the future investors that will be agreeable for all parties involved. This way you will be ready to negotiate the terms of their investment and improve your business plan.
If you are a young business
Being a start-up business with barely a year of revenue behind you is going to make it hard for you to get a loan, regardless of bad credit. You can use startup financing options which are specifically designed for young entrepreneurs. Another option is getting business credit cards which will allow you to borrow a certain amount of funds but based on your personal credit score.
However, from then on, you should pay close attention to how you manage your finances in order to create a good credit score. Use the credit cards responsibly and organize your budget beforehand, so that you can leave a positive impression on your future lenders.
Research the lenders
Before you start applying all around, take into consideration that preparing documentation will be an expense. Instead of wasting your money, do some research and assess the potential lenders you can ask for a loan even though you have a bad credit score. Family owned lender companies like EFT finance businesses based on their comprehensive performance on the market, and not only their credit.
Traditional bank loan
When it comes to banks, your options may be quite limited for a loan although not impossible even with a bad credit score. But the conditions for the loan will be a little bit different for you and that is something you should ask about before applying. Namely, the interest rate may be higher and you will have to provide more collateral then businesses with good credit score.
To make sure that this is not something that will get you into financial trouble, calculate all fees and costs. Add this figure to the borrowed sum and you will calculate your monthly payments and overall value of the loan. However, keep in mind right from the start that your fees may be higher and the payment period shorter.
In the end
When it comes to loans of any type, it’s important not to rush into them without knowing all the facts. Even businesses with bad credit scores can apply for loans under slightly different conditions and requirements. Before you decide on the lender, do your research and examine all the offers available for you in order to make the best possible choice.
In the end, it’s important to find the solution that won’t affect your business negatively or get you into financial troubles.
