There are many reasons why a company might suddenly need a loan. It can be because the business is struggling. Or maybe an opportunity was presented, and it’s just too good to pass up. Or you might think it’s time to expand the business, but you don’t have access to the funds yet. Regardless of the reason, a business loan is the most realistic answer to these financial problems.
The big question is how are you going to get that loan, especially if you’ve got bad credit? Is it time to give up? Of course not! There are other ways to get loans these days, even with bad credit. Read on to find out how to get a loan despite a bad credit score.
Why do I need good credit to get a loan?
You might ask yourself why good credit is even relevant in this conversation. Well, you’re not the only one.
Here’s why: a good credit history shows lenders that you are a responsible individual who is capable of paying them on time. After all, they lend money to get a profit; they need assurance that you’re not a flake. And even though not everyone with bad credit is immediately bad with money, lenders still aren’t likely to take that chance. It’s money they are re dealing with, they’d rather be safe than sorry.
Traditional lenders typically ask for credit scores around 650 or higher before they even begin thinking about your application. If your business has been operational for a year or less, then only your personal credit score will be considered. Otherwise, both your business and personal credit scores will be evaluated, with some lenders valuing one over the other.
Get your loan approved
- First, you will need to fix your credit score. This doesn’t happen overnight, and ideally should be done way before applying for a loan. But hindsight is 20/20, so you just have to do your best in taking all the measures to improve your score.
Review your credit score and history, make sure you pay down as much balance as you can. Avoid any more later payments if you want significant change to happen with your credit.
- Create a plan. This should go without saying, but a lot of people still forget to plan out their business. Although not a usual requirement, some lenders prefer borrowers who have a solid plan of action prepared for the money they are asking for.
Even outside the lending perspective, having a business plan is still a generally good business move.
- Next, find options that are available for you. This includes loans that you are qualified for, as well as those that suit your needs best.
Loan eligibility depends on different factors, such as the type of loan you’re applying for. If you try applying for a small business loan, despite having a big business, then obviously you are ineligible for it.
Factor into your research the payment options that each loan offers. Find one that is reasonably achievable for your plan and budget. This way, you can set aside the funds you will need to pay for the loan, so you can avoid late penalty fees and default on payments.
- Use collateral. For borrowers with bad credit, the easiest way to secure a loan is by offering the lenders collateral. As mentioned before, lenders want assurance that they will be paid, and collateral will do that job.
Choose collaterals that you deem expendable in worst-case scenarios, such as business equipment or a car. Generally speaking, do not use personal properties (like your house) as collateral unless absolutely necessary. In case your business ventures fail, losing your business along with your home is going to be a tough blow.
- Assuming you have a business partner or trusted friend with good credit, ask them to cosign on the loan with you. Their credit history will give you more of a fighting chance in getting that loan since lenders will see that someone with a good track record can step up.
In case, for whatever reason, you end up defaulting on the loan agreement, your cosigner will be stuck footing the bill. Only cosign with someone you trust and someone who is comfortable and able to pay the loan in your stead.
We can help you!
Even with great business ideas, bad credit can be such a pain to deal with. Don’t worry, we can help! Bad credit isn’t an automatic disqualifier for us, Clear Skies Capital can offer you alternatives you haven’t thought of yet. We will help you in any way we can. Contact us to talk to our team of experts about your situation.