In order to secure any type of small business loan, you’ll typically need to demonstrate your ability to pay back the funding. This means providing a wealth of information, including credit history. Many lenders will also require you to prove your business management experience while providing information about collateral and equity investment. If you have bad credit, lenders may be more hesitant to approve your loan request. Simply put, bad cred is usually a red flag for lenders, as it may indicate that you haven’t handled your finances well in the past.
In an ideal world, all business owners would have a stellar credit history they could leverage to build and fund their businesses. Unfortunately, that isn’t the case for all business owners. Whether you’re a business owner with poor personal credit or your business credit history is bad, it is still possible to find small business loans with bad credit.What Constitutes Bad Credit?
Depending on a lender’s specific underwriting requirements, a bad credit score could range anywhere between 300 to 629. Bad credit is among the most common reasons for business loan applications to be rejected. According to statistics from the Small Business Administration, the approval rate for business loans from big banks is less than 23 percent. While it’s always been difficult to get approval for a traditional small business loan, bad credit can make it even more challenging. Making matters even more complicated is the fact that bigger banks are now vying for those borrowers who are considered to be the crème de la crème, meaning CPAs, attorneys, doctors, and established companies. This has made it incredibly difficult for small business owners to fight for available funding, and almost impossible for a small business owner with bad credit.
Even so, it’s important to understand that you can still get a small business loan with bad credit. Alternative lenders have become a preferred option for many small business owners with bad credit who don’t qualify for loans from traditional lenders. Since alternative lenders typically place more of an emphasis on the operating history of your operation, there is less focus on your credit score. This means that it may be entirely possible for you to obtain a small business loan despite your bad credit situation.Taking Advantage of Small Business Loans for Bad Credit
In the past, small businesses owners often found they had little choice but to rely on traditional banks. When a conventional bank said no to a business loan due to bad credit, this usually left business owners out in the cold. Today, there are numerous companies that provide business financing to applicants with low credit scores.
These types of small business loans for bad credit do usually come with a higher interest rate. Even so, if you wish to build your business, these loans offer a viable method for getting your business on the path to success while improving your credit history.
It’s essential that you weigh all of your options and compare those options based on both terms as well as interest rate. Before applying for a small business loan, always take the time to evaluate your needs and determine why you need funding and how much funding you require. Prior to applying for small business funding, make sure you have all of your financials together. Lenders must be particularly diligent as a result of new regulations that require them to verify the ability of a borrower to repay funding.
In exploring your small business financing options, you will find there are numerous choices for bad credit loans, including homeowner, guarantor, personal, installment, and logbook loans. Each type of loan has both advantages and disadvantages.Should You Choose Bad Credit Finance Companies?
There are numerous options available for business owners who are in need of business financing for low credit scores. As is the case with any type of financing, it is important to be cautious regarding the financing companies you choose to work with. In particular, it is vital that you choose a lender that is completely legitimate.
For instance, some lenders will require you to pay an upfront fee when you apply for a small business loan with bad credit. You should always be wary of any organization that requires the payment of an upfront fee, as this isn’t a guarantee of a decent rate or even loan approval. In fact, paying an upfront fee to apply for a loan could become just another expense your business must pay, placing a financial strain on your operations.
You’ll also find numerous companies that serve as a middleman to match consumers with lenders. While there is nothing wrong with this practice on the surface, it does add one more layer to the process, and involves working with a third party. The process is usually much smoother when you work directly with a lender.
When searching for small business loans for bad credit, your best option is to work with an organization that provides both recommendations as well as straightforward requirements. Additionally, you should make certain you ask the lender how your business loan funding will help to improve your credit score. Remember that while receiving the funding you need is certainly important, another critical benefit of that funding is the ability to improve your credit score if you’re fiscally responsible and pay back your loan on time. Once you have rebuilt your credit, you’ll likely find it much easier to qualify for funding in the future, and may be able to obtain more favorable terms, including a lower interest rate.
Keep in mind that just because you have bad credit doesn’t spell the end for your business. It is merely an obstacle. You can establish a good credit history by working with the right company to find the small business loan you need. Don’t miss the opportunity to do just that.