A business loan can be a great way for your company to grow. Is it possible to get a loan if you do not have good credit? There are steps you can take that will increase your chances of being approved for small-business loans. We’ll discuss them here.
What do lenders consider bad credit?
Many people have experienced a credit crisis at one point or another in their lives. Perhaps you have missed a payment or had an unexpected expense that meant you couldn’t pay your monthly bills. Perhaps you have made poor financial decisions in the recent past. Whatever the reason, your ability to obtain a loan for your business will be affected by your credit score.
Bad credit can mean anything, from having no debt (a good thing!) Late payments on rent or utility bills. This could also be considered bankruptcy. What is bad credit? Anything that could make you a high-risk borrower such as a low credit score, or no credit history.
How much credit score does a small business loan require?
A business credit score that is acceptable for a loan can’t be compared to others. FICO (minimum credit score) is determined by several factors. These include the amount of collateral, the purpose of the loan, and whether it’s an unsecured loan. To be approved for small business loans from banks and credit unions, your personal credit score must be at least 600.
What are the chances of getting a loan without a credit check?
Your credit history is examined by traditional lenders to find out how well you’ve handled debt in the past. If there are any red flags, a business loan won’t be approved. In the case that you are determined to be a business owner but cannot meet the minimum credit score requirements, there are loan options.
There is also the option of taking out a loan from an institution that does not check your credit. Unfortunately, these loans come with high-interest rates. addition, these bad credit business lenders don’t normally accept applicants with scores under 500, and many require that borrowers have a minimum FICO score between 580 and 600.
Best options to get a business loan with bad credit
If you have poor credit (629 FICO or lower), there are several types of business loans for bad credit. These include:
1. SBA loan
The Small Business Administration offers a range of loan programs to businesses with poor credit including the Microloan Program, CDC/504 Loan Program, and the Microloan Program.
2. Merchant cash advances
Merchant cash advance (MCA), a short-term loan that is based on future credit card sales, is available. These loans are usually unsecured and come with high-interest rates. They also have no repayment terms.
3. Business credit
The business line of credit works in the same way as a personal credit line, but it is for your business. These loans are unsecured, and often have variable rates linked to an index such as the prime rate or LIBOR.
4. Equipment loan
A loan can be obtained for equipment purchases for your business. These loans are usually unsecured and require a shorter repayment period than traditional loans.
5. Microloans
Microlenders offer loans for small businesses to owners that traditional banks would not approve. The average loan amount is $35,000 and the interest rates are extremely high. It is important to shop around to find the best deal.
6. Peer-to-peer lending
Peer-to-peer lending is a new concept. Borrowers are matched with investors who are willing to lend them money. You don’t have to apply through a bank for a loan. Instead, you can match up with a lender using your application for unsecured business loans.
7. Guarantor loans
These loans are unsecured and co-signed by someone else. They guarantee to repay the loan if you don’t. The guarantor must be able to provide collateral and have good credit.
8. Factoring or invoice financing
Another high-risk option allows businesses with strong revenues and low credit scores to obtain cash to pay unpaid invoices. The company sells its outstanding accounts receivables (A/R), at a discount.
9. Business credit cards
Although a business credit card can be expensive due to the high APR, it is an option for those with bad credit who need quick cash. These cards have lower rates than other loans for small business owners with poor or no credit.
10. Crowdfunding
Crowdfunding allows you to raise funds from large numbers of people via the internet. The Crowdfunding platforms offer loans to business owners with poor credit.
What do you need to know about getting a business loan with bad credit?
You have options if your credit is not good enough to obtain a small loan for your business. These are some tips and tricks to help you get started.
- Make sure you understand all terms before you sign anything. These terms include the interest rate, monthly payment schedule, and repayment schedule.
- Compare offers to find the best deal. It’s important that you compare rates and terms between lenders to find the best deal.
- You should be prepared to provide collateral. In the event that you are unable to repay the loan, many lenders will require collateral. This could include your home, vehicle, or business assets.
- Prepare a business plan and financial statements. Lenders want to see that your business is well-understood and that you are able to repay the loan.
Do not let bad credit stop you
There are many options to help your business get the funds it needs, even if your credit is not perfect. It is a good idea to look into ways to improve your credit score for long-term financial security. These lenders are a great source of funds for small businesses that have bad credit. Businesses with limited cash flow may find loan payments a burden. It is important to choose a loan with manageable monthly payments and low-interest rates.
