Getting Business Loans with Bad Credit

1. Getting Business Loans with Bad Credit When it comes to getting business loans, a good credit score can be extremely helpful. A high credit score shows lenders that you are a reliable borrower who will make payments on time. However, it is not always possible to keep your credit score high. Research shows that tens of millions of people in the US have a low credit score that does not qualify them for getting credit. This could mean that many doors to good opportunities are closed for such people. Thankfully, there are a few alternative lenders that offer business loans to people, even if they have low credit scores. Capital for Business is an alternative lender that offers loans to businesses with poor credit history to help them with their financial situation. What is a Bad Credit Score? The US financial system is based on capital and trust. We are a consumerist society at large. The credibility of individuals, even businesses, is dependent on their ability to make loan repayments on time. Credit scores are designed to assess the likelihood of borrowers to repay their loan. There are three major credit reporting agencies and their score range from 300-850 on the scale. The higher the number for a person, the more likely they are to repay loans on time. There are some differences between lenders, but generally, any credit score below 650 is considered bad. Individuals below this number are considered risky investments and most lenders and financial institution are unwilling to approve loan applications for those borrowers. There are lenders in the market that are willing to approve loans for people with a score as low as 500 on the scale, now there are risk involved here and lenders do expect a premium on the loan to cover the cost in case the borrower defaults. Given the extremely low federal rate in the US right now, even a risk premium is relatively low for most borrowers. Why Do Borrowers Get a Loan When Their Credit Score is Low? There are three main reasons why borrowers choose to get a loan even when their credit score is low. Loans for an Emergency Medical emergencies could come up at any time. If you do not have enough insurance coverage, you may have to take up an emergency loan to pay your hospital bills and medication. Several banks offer such loans for borrowers with low credit. These loans can be a lifesaver in tight situations. Loans for Raising the Credit Score One of the most interesting things about credit scores is that it is not based on how much wealth you have. It is based on your track record of taking credit and paying it back on time. People who have never had a credit card or never taken a loan from the bank may have a lower score than people who regularly take out and repay loans. You could be earning a million dollars a year and never taken out a loan yet find out that your next door neighbor who makes a hundred grand a year has a higher score than you.

2. Many borrowers take out a loan to improve their credit score a few months before they apply for a home mortgage. As they start making regular repayments on their loan, it raises their score and gives them a better interest rate later. Loans for Business and Investment Finally, the third and most popular reason why borrowers take out loans on a low credit score is because they want to invest the funds into a money making opportunity. This can more than cover the cost of the loan and earns them a bit of profit as well. The current interest rates are lowest in the history of the US. They are expected to remain so for some time. A proactive entrepreneur can invest the money into a stable business that earns him or her some decent income. The business does not even need to generate a lot of profit. They need to make just enough money to cover all the costs of running and financing the business operation smoothly. Things can take off when the economy recovers and gets back on track. Options for Business Loans Available on Bad Credit There are several financing options available for people who want to start a business on bad credit. Here is a list of loans that you can consider. Traditional Bank loans This option is more suitable for people with good or excellent credit. However, it can work for people with low credit if you approach the right bank for a loan. This type of loan is generally unsecured, so the interest rate tends to be quite high. Microloans Microloans are generally much smaller in size and suitable for SME business organizations. These loans could be from a few thousand dollars to twenty thousand dollars. Since the risk is lower in the case of default, the credit score requirements and the interest rate on such loans are also lower. Business Credit Cards A credit card is much easier to apply for and. It is great for improving your credit score quickly. However, take note that this is one of the most expensive types of credits that you can get, even if your credit score is high. We suggest repaying the balance before the due date and switching to a better loan option. Merchant Cash Advance This type of loan is also called a business cash advance. It is useful for businesses that are struggling with liquidity problems and need credit to sort out short term cash flow issues. Businesses can get loans of up to ten thousand dollars on a rolling basis. Cash advances generally have a high-interest rate and payments must be made on time to avoid penalties. Be certain you can repay on time before going this route. It is an unsecured loan, so you do not have to provide collateral. You can get this loan even on a bad credit score. Home Equity Line of Credit

3. You can get a business loan by using the equity value of your home as collateral. This is a secure type of loan, so lenders will offer you a favorable interest rate. You can get it even on a low credit score and the process is quite easy. Do note that this option is quite risky for you. If you default on the loan, you can lose your house. So, make sure you only use it when you are sure that you can meet the payment obligations on time. Private Financial Lenders In the last five years, many new private financial lenders have come into the market. These lenders offer loans on extremely easy terms and their qualification criteria are quite different from traditional banks. These lenders are backed by institutional and private investors. They take a holistic view of borrower’s business performance, financial track record and feasibility of new projects. The credit score is also considered, but not the main criteria for loan approval or rejection. These lenders can be a great source of raising finance for new and existing businesses. Capital for Business is one such lender that offers a variety of loan programs designed for SME businesses. The Process of Getting a Business Loan on Bad Credit Once you have decided to apply for a loan and have selected a lender, consider the following factors. Be Aware of Your Credit Position Every person is entitled to get at least one free credit report annually. You can ask the credit bureau for a report to see where you stand. Having a credit score between 300 and 650 is not a very ideal position to start. If your loan is approved, it will likely have a slightly higher rate. You should be prepared for that. The good news is that when your credit score rises, you can ask for a review or restructure your loan at a lower rate. Offer Collateral Collateral makes a big difference in your application. It mitigates the risk for the lender, and they may be willing to offer you the loan on better terms. There are several assets that you can use as collateral. G Cash or savings accounts G Equipment or machinery collateral G Investment accounts G Outstanding customer invoices G Personal assets such as your home or automobile (risky but highly effective for getting a lower rate) Apply for a Lower Amount of Loan If your credit score is extremely low, you may find it difficult to get approved even with lenders who accept low scores. One way to remedy this is to review your business plan and lower your funding requirement to something that is more realistic. See if there are any areas where you can minimize costs and expenses to lower your initial funding requirements. If you apply for a small business loan at the start and things go well, you can always apply for additional capital to grow the business later. Conclusion

4. A low credit score does not necessarily mean disqualification for a business loan. If you have a strong business plan, keep your loan amount reasonable and apply with the right lender, you should be able to get approved. If required, you can also add collateral to the application to improve your chances. Capital for Business offers many options for business loans that will be suitable for individuals and SMEs. Get in touch with our advisors to find out more. visit https://capitalforbusiness.net/bad-credit-small-business-loans/