Getting business loans isn’t easy, especially for small business owners. This is made more difficult by bad credit. But don’t worry, because there are measures you can take to try and get some funding. All you need to do is assure the lenders that you’re reliable enough to make your payment dues.
Below are the top 6 tips for small business owners
Tips for getting a small business loan for owners with bad credit are:
- Repair your credit
First things first, you have to do what you can to repair your credit. Increase your score in all the ways you know. This shows lenders that you’re serious in this endeavor, and therefore will help in building trust between you.
However, repairing credit isn’t easy and takes a very long time, so start this process the minute you become serious about your business. Even better, do this before you even start thinking about a business. Credit isn’t usually our top concern, so just do your best with the cards you were dealt with.
- Get your priorities straight
Business loans shouldn’t be done in a snap. Going up to lenders with nothing but dreams and a no-can-do attitude isn’t enough. You need to show up with the whole artillery of to-dos to prove that you are actually serious about this. Lenders will not want to risk their money on people who look like they don’t know what they are doing. They want people who can deliver on their promises, and most importantly, people who can pay them.
Lenders consider many factors before granting a loan, the most significant of which are potential business profits and the personal finances of the applicant. This is why credit repair is the first step in applying for loans because making your personal finance look appealing to lenders will take a lot of time.
So before approaching banks and creditors, have all your data in order. Be sure to clear out your existing debts, have an acceptable credit score, and prepare your business plan. Lenders will want to know how you plan on profiting off the money they lend you.
- Realistic risk assessment
Lenders are warier of lending to small businesses than large companies because they have less assurance of success and payment. This is the main reason why small business owners have difficulties in acquiring business loans. Smalls businesses have less to offer in terms of collateral and profits and have little finesse in the order of their business structure.
Figuring out the risks that you will face as the business-owner will show lenders that you’re not in over your head. Knowing the risks of the business will also save you from having the lenders point it out themselves. This way, you will be prepared for whatever questions they throw your way. They’ll see that your business venture is serious, and will be more likely to approve your loan.
- Research different loans and lenders
Aside from proving that you know what you’re doing, researching different loan types will also equip you with better knowledge of what your business needs. Instead of settling for the first loan you see, this research will help you choose between the multiple loans available.
One of the popular small business loans is SBA loans, which are endorsed by the Small Business Administration. Other loans to look for are the following:
- Alternative financing. These are financing methods outside banks. It can come from cash advances, crowdfunding, and other non-banking funds.
- Business lines of credit. Think of this as a credit card, but for business. This only needs to be paid if you use the money.
- Equipment financing. True to its name, this is used to finance the equipment needed for the business.
- Long-term loans. These loans are much larger but can be paid over a long time with low interest.
- Short-term loans. Loans that are repaid within a shorter time span.
Also, do your research on which lender will benefit you most. Do not engage with the first lender you meet. Instead, talk to multiple lenders until you find one that will serve your needs best. Pay attention to the lender’s specialization, reputation, terms, and offers. Try to find lenders that have a good history with businesses like yours.
- Save up before applying
Some people think that getting approved for loans is the toughest part of starting a business. News flash, it’s not. Actually paying for the loan might be the hardest part of borrowing money.
There is no guaranteed profit from your business venture, especially in the first few months of it starting. You need to be sure you’ll be able to make your payments unless you want to pay for the penalties too.
Make sure you have enough funds set aside to help you float while your business is still starting. Keep this cash reserve separate from your other funds, so you’ll always be able to pay your loan on time.
Lenders want people who are able to pay their loans back, so having this payment plan raises your chances of loan approval. Another way to reassure them is by offering non-cash collaterals, but you stand to lose personal assets through this.
- Create good networks
There is power in knowing the right people, and this is no exemption. Having a good relationship with your lender can get you farther than most.
Try to establish this positive relationship with them in the early stages. Lenders are more likely to offer you better deals and programs that you can use to your business’ advantage. A good working relationship with your bank will also help other lenders understand your business better, which in turn helps in establishing trust between you.
We Can Help
It’s a fact that business owners who get financial assistance have a better chance of succeeding than those who struggle alone. Using a small business loan, business owners can rise above their bad credits and finally move forward. Applying for these loans can be difficult, especially if you don’t know what you’re doing. With the help of Clear Skies Capital in acquiring business loans, small businesses have a fighting chance at success!