There are a variety of reasons why small companies, start-ups, and solo entrepreneurs struggle to obtain the financial support they need to grow their business. One of the biggest obstacles they face when they apply for a business loan is a bad credit rating. But what does that mean, exactly? To understand how credit ratings work we first need to look at something called the FICO rating.
The FICO rating is used by 90% of US financial institutes to asses lending risks. FICO ranges from between 300 and 850, and the higher your FICO score, the better chance you have of obtaining a loan. On the other hand, a low FICO score is one of the main reasons that loan applications are rejected. This is because most banks and lenders consider a low credit score to be an indication of the likelihood that a borrower will default on their loan repayments.
A poor credit score can also create the impression that finances have not been managed well in the past. In particular young entrepreneurs and start-ups are regularly turned away because, from the point of view of the lender, they lack the experience and business acumen to operate successfully. Banks just aren’t willing to take the risk. But even if you do have a low rating, you still have options. Let’s take a look at some of the choices available to you when you’re trying to get a loan, despite a bad credit score.
In the US alone, almost forty percent of all loan applications from small businesses are rejected. This situation has led to a growth in alternative lending. While still a fairly new way of obtaining a business loan, alternative lenders operate by bridging the gap between small companies and sources of funding.
Alternative lenders may set a minimum FICO score of between 500 and 650. Some have no minimum credit rating at all. Instead, they are more concerned with how strong a business is, rather than the personal credit rating of the owner. They look at yearly revenue, how long the business has been operational and if there is a history of bankruptcy.
As a leader in the alternative lending market, Clear Skies Capital is here to assist small business owners with bad credit ratings to secure the funding they need to grow their business.
Improve Your Credit Score
Another option that can lead to you securing the funding you need is to improve your credit score. This is a long-term strategy, however, and it requires time, discipline and careful planning. One strategy is to obtain a secured personal credit card. You’ll need to put down a cash security amount when the account is opened, and if you use the card responsibly, your credit rating will improve.
Remember this is not a quick-fix. It takes time to repair a bad credit score. One of the most critical factors that can improve your rating is the punctuality of your repayments. Late payments, even if they are just a few days behind, can impact your score. But if you can show you possess the discipline to pay your bills on time, every time, you will eventually improve your score. Plus, you could also qualify for borrowing options with lower interest rates.
On the downside, very few small business owners can afford to wait until their credit score improves. So you’ll be relieved to learn that alternative lenders have approved more loans in 2018 than ever before. The reason for this rise in alternative lending is the strength of the current US economy and the fact that unemployment has hit record lows. As a result, small businesses with bad credit can now afford to be more optimistic as they are more likely to get loans approved.
Get Help Today
All of this means that now is a great time for you as a small business owner to approach us at Clear Skies Capital. When it comes obtaining capital for your small business, time really is money. The longer you leave it, the more expensive it’s going to get.
Here at Clear Skies Capital, we’re committed to making it as easy as possible for you to secure a loan quickly. Talk to one of our loan experts today about our suite of lending products. We’re determined to help your business prosper, even with a bad credit rating. Partner with us and we’ll help you and your business achieve your true potential.