Trying to get a business loan — or indeed, any loan — with a bad credit score is always a tough call. Lending institutions understandably want to mitigate their risks. So, they always want to confirm that their borrowers can meet their debt obligations with them.
Because of that, credit scores have become widely adopted to serve as a gauge of the creditworthiness of potential borrowers. Without a good one, all your hopes of securing a loan might be lost. And if it is a business loan that you seek, your hopes of starting your business might as well be dashed.
In any way, getting a loan to establish a small business does not have to be challenging. However, since you most likely do not have a business credit score yet, it can be. And if you want to expand your business, but your credit score is bad, you might be signing up for some really tough game.
This post aims to show you how you can boost your chances of getting a business loan even if you do not have a business credit score yet, or if it is not good enough.
Have the right considerations
When scouting for a business loan, you should be clear about what you want. Being so will improve your approval odds. For example, which type of lender do you want to seek out? Most traditional lenders have strict loan requirements, and so you might want to avoid them.
Also, for how long have you been in business? If the loan you are seeking is for a new business, lending institutions will ask only for your credit score. However, if the business is already established, both your personal and business credit scores will be considered.
Additionally, what are the cash flow and annual revenue of the business? Potential lenders might want to know these, too, and the higher they are, the better your odds.
Do your research
What you are looking for exists. That is, there are lending institutions with relaxed requirements that will not mind giving you a loan for your business in spite of your bad personal or business credit score.
However, you might have to do a bit of extensive research to find them. Do your research online. Use forums to find out what others are saying. You will be surprised at how so many are having the same challenge as yours.
Do not bother to apply to any lending institution whose requirements you fail to meet. More often than not, doing so will end up amounting to a waste of effort and time. Instead, look for ways to improve your score first before you try any one of them.
Be familiar with your options
As tough as getting a business loan in spite of a bad credit score is, it is not impossible. The primary aim of having the right considerations and doing research first is to be able to familiarize yourself with available options so that you can know the best for your needs.
There are business credit cards, short-term loans and lines of credit, microloans, and merchant cash advance. Each of these has its peculiarities. For example, if your business accepts a high volume of credit card payments, a merchant cash advance will be best for you. And if it is a small amount you need, go for a microloan.
Write a business plan
Writing a plan for your business is a smart move to improve your chances of getting a business loan. First, it gives the impression that you are knowledgeable about what you are setting out to do. Also, potential lending institutions, by assessing your plan, can evaluate the business’s estimated financials.
From that, they can be better informed about the level of risks they will be taking on if they eventually give you the loan. For your business plan to have this effect, however, it’s recommended that you seek out the opinions of business experts in preparing it and that you do not exaggerate the details in any way.
However, if a small business loan still seems impossible to get in spite of all these or maybe you want another one that better fits your needs, do not give up.
Boost your personal and business credit scores
To improve your chances of getting a better loan, you should work on your low credit score. First, ask for your credit reports to have any error promptly resolved. Then, consolidate all your credit card debt and commit to paying your loans on time. Also, in the long term, lower your credit utilization rate.
Go for a collateralized loan
Providing collateral when applying for a small business loan is another way by which you can improve your chances of getting it, even if you have a poor credit score. Therefore, you might want to restrict your search to only collateralized business loans.
Collateralized loans help lenders limit their risks. As a business owner, you can get such a loan by using either your invoices or equipment as collateral. You must be careful, though, as your lender can decide to take over the assets you use as collateral if you default.
Revise your business plan
While drafting business plans, there is always a tendency to make excessive financial projections. That is, it can give you the illusion that you need far more for your business than required.
Therefore, you should revise your business plan. Try to cut down on your estimated costs. Revise your capital requirements. You might want to consider the service of an external consultant to give a better view of the required finances.
So, you already own a business. Or maybe, you are just looking for funds to start one. Whichever of the two, getting a business loan can be a tough call, especially if you have a terrible credit score.
However, do not worry because, indeed, business loan provisions for bad credit exist. And the ideas this post has provided you with should be helpful enough for you to get one.