Trying to apply for a business loan while having bad credit is quite hard if you think about it. However, it is not entirely impossible. Several lenders in the market are willing to give you a chance, not to mention that there are different types of business loans with varying repayment terms. Moreover, some of these business loans have less strict terms and conditions.
In today’s economy, most small business owners have a hard time applying for a loan because of their bad credit, not giving them a chance to start their businesses. A poor credit score implies that you poorly managed your finances in the past, giving your lenders less trust in your ability to pay them back.
There is good news, however. Alternative lenders and nontraditional loans are growing in popularity. Also, most of them may or may not consider your credit history, making it easier for you to apply for a loan. Instead of looking at your credit history, they opt to look at your business’s potential and revenue. That said, here is how to get a small business loan with bad credit and alternative business loans you can look into.
The first thing you should do is check your credit score. If you already have a business credit score, check that one out too. What you can do with these is to find any errors, especially in your credit report. However, these errors can be quite hard to find, not to mention they are also rare.
If you manage to find a significant one, you can dispute it to the credit bureaus. Knowing your credit score or business credit score is a great determinant of your options regarding business loans.
To give you a clue to what kind of business loan you should look for, find one that can give you the most amount of money while being retrofitted to your situation.
Some lenders require a business plan as an initial requirement for your application process. Even if your chosen lender doesn’t, it is still a good idea to make one. This is especially true if your poor credit score stemmed from poor financing decisions in the past. With a business plan, these mistakes and bad decisions can be avoided to prevent the same outcome.
Having collateral is an excellent way to make your chances go up in getting approved for a business loan. If you don’t know what collateral serves, the concept is simple. If you fail to repay the loan, the lender can seize the collateral as an alternative payment to your loan.
That said, it is often a bad idea to put up your house, car, or other personal assets as collateral as they might be taken away.
However, this only serves an assurance, so paying the loan on time and with the right amount, your assets are safe. But it’s not recommended to put up personal assets as collateral, so refrain from doing it.
If you have bad credit and aren’t able to pay the loan on your own, finding a cosigner is a good idea. For some, this may be the only option to get approved for a business loan. So what does a cosigner stand for? A cosigner is responsible for the repayment when the borrower isn’t able to repay the loan.
After learning about How to get a small business loan with bad credit, here are some of the loan options you can look into for your business.
Like its namesake, a short-term loan is a condensed version of the conventional term loans that banks usually offer. However, short-term loans still have a lot of similarities with conventional term loans.
The only difference between the two of them is the time the loan matures. The maturity of the loan can get up to 30 years after the day you signed for bank term loans. For short-term loans, it can mature as fast as 18 months.
Technically, business line-of-credit isn’t a business loan, but many business owners opt for this option because of the ease of access to funding. With this option, you will be able to cover unexpected costs, and the only payment you’ll pay is the interest.
A merchant cash advance isn’t technically a loan. Instead, it is an advanced kind of funding that is paid with your future sales and revenue. This makes it a good option for you to raise your capital.
Applying for a conventional business loan is next to impossible if you have bad credit. However, there are alternative lenders and a plethora of nontraditional business loans you can look up online. With these options, you will surely find one suitable for you, and you’ll finally be able to start or expand your business.