How to Get a Business Loan
With Bad Credit
If you have a less than perfect credit score you are not alone. The Small Business Association cited a recent report showing that of all of the business owners seeking funding, 63% of them targeted banks. Of that 63%, only 27% were actually successful in getting a business loan. Even small business owners with a golden credit rating are having difficulty getting traditional bank loans. It is almost impossible to grow a small business to the next level without ta loan. Statistics show that lack of funds is the biggest roadblock most business owners face when growing their business.
Read more on the 5 stages of business to see why most small businesses fail to reach their potential.
The good news is there are funding programs and solutions which give business owners with poor credit real opportunities to expand.
During the Great Recession of 2009-10 thousands of small businesses fell behind in payments and cash flow issues were hard to correct. This left many small businesses in the position of developing poor credit scores which took months or in some cases, years to mend. This is where non-“brand name” lenders and non-traditional loans began to emerge to help get America back on track. If you have a low or non-existent credit, here are some tips on how to get started.
If you don’t have a great credit score or no credit score at all, there are three basic steps you can take to make yourself more attractive to lenders.
Know your credit score
If you know how the whole process works that is a good start. Every twelve months, you can get a free credit report from annualcreditreport.com. Once you have your credit report you can check it for errors and work on rectifying any mistakes. Bear in mind that many people have a below average credit score due to circumstances beyond their control. Elizabeth Palermo of Business News Daily recommends that “People with bad credit should consider non traditional financing options which tend to place less emphasis on credit scores, before giving up on getting a loan.”
Examine your ability to pay
Many loans for business are based on calculations of cash flow. Check your records and bank statements to see if you can show on paper that you can afford to make a loan payment. To judge your ability to pay, banks may look at the last 3 years of performance at minimum. If your business is younger than that, the bank will look at a solid business plan with realistic projections. Statistics show that around 25% of small business funding is acquired through banks meaning 75% is acquired via other sources. Often, non-brand lenders will have less stringent terms and conditions which make it easier for small business owners to access capital.
Look at some of your options
There are many types of small business loans available to people who have bad credit. The most common of these include:
Simply put, a merchant cash advance is a short term loan provided in exchange for a percentage of the company’s future credit card sales. These types of loans give business owners access to fast cash regardless of their credit score or collateral. Some lenders will have the funds in your account in less than two days however, you can expect higher interest rates than those of a loan from a traditional bank.
These can be a good option for businesses that need $50,000 or less to achieve their goals. Several of these loans are available through the Small Business Administration’s (SBA) Microloan Program, which goes through intermediary lenders who are often non-profit and/or community-based. Lenders who are offering microloans are typically more lenient when it comes to their requirements. These types of loans are often geared toward minority and special groups.
Some online lenders offer the right types of loans for those business owners with bad credit. They will also report your payments to credit bureaus which in turn, raises your credit score as long as you make your payments on time. Because there are many of these types of lenders, be sure to shop around and do your research as each site will present you with different terms and will have a different approach to how they price their loans. The interest rates for these types of loans tend to be higher than traditional term loans due to the fact that they are associated with more risk for the lender.
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