Think your dreams of owning a business are dashed because of a low FICO score? Not so fast!
Here’s how to get business loans for bad credit.
Nearly a third of all Americans have a credit score lower than 601.
With 27.9 million small businesses in the United States, a lot of those owners probably have bad credit.
So, if you own a business, have bad credit, and are also low on liquid capital what do you do?
Here we discuss business loans for bad credit. Not only what you should consider before applying for the loan, but also how thinking creatively can help you come up with necessary funds.
What Is Considered ‘Bad Credit”
Your FICO credit score is determined by several different factors.
Your amount of debt, how timely your payments are, if you’ve ever been sent to collections and how much debt you hold compared to how much credit you have.
These factors are compiled together to give you a score between 300-850. This determines how trustworthy you appear in the eyes of lenders.
When there are several negative marks in these key areas, late payments, maxed out credit cards, repossession or eviction, your score starts to go down.
Any score ranging from 300-579 are considered very poor/bad. 580-669 is considered fair. 670-739 is considered good and anything above 740 is basically excellent.
If your score is on the low end of this spectrum borrowing money and applying for credit could prove difficult.
If you own your own business and need a loan to help it flourish you will have to think outside of the box about business loans for bad credit.
Thinking Creatively About Business Loans for Bad Credit
First, make sure you really do need the money. Go through all of your financials. Determine the least amount you need to make it through the rough patch.
The less money you need to borrow the more resources you’ll have at your disposal.
Most people overestimate the amount they need to get going.
Get it down to exact dollars and cents. If you have exact figures lenders will take you more seriously.
Make sure you are using all the resources at your disposal.
Ask friends and family who understand what you’re trying to accomplish. Ask if they would be willing to give your business a loan.
If they support you and have the funds they may give you a loan or even a gift to help your business get off the ground.
Consider funding sources outside of traditional banks and credit cards.
There are a bunch of web-based lenders. These lenders are more able to take on risk because of their low overhead.
It’s easier to qualify for more money when your score is above 500. Make sure you’re trying to build your credit during this time to make it as attractive as possible. Seeing recent jumps in your score is favorable to lenders as well.
If you want free money you need to research gifts and grants.
Government grants and other sources of free money are out there for the taking. This does require lots of research and dedicated time to accomplish.
Be a skeptic when coming across services offering to do the research for you. They could be looking to make a quick buck off people without one to spare. Doing your own research will save you money and time in the long run.
Are you in your first year of business?
Leverage your startup status and take advantage of the money available to you as a new business.
If you need less than $35k you can apply for an SBA loan or grant.
Turn to crowdfunding sources to get the people who love your new brand to help fund it.
Have a huge sales order but low on funds to complete it?
You can turn your large customer invoice into a cash advance using different online lenders.
Be wary if going the cash advance route. Check interest rates and make sure you will be able to pay up when they come due. This can be a risky endeavor.
Look for loan options that specialize in helping those with bad credit. Research credit cards to apply for that will help build your credit.
Building Business Credit Takes the Pressure Off
There is another route to consider when trying to get funding for your business. Taking your personal credit out of the scenario can be exactly what you need to do.
One of the best ways to avoid involving your bad personal credit in your business is to build your business credit.
Open files with all the major business credit bureaus: Experian Business, Equifax Business, and Dunn & Bradstreet.
Start building great business credit quickly by finding 3-5 business credit cards. Get approved and start putting transactions on them.
Let the balance carry for a month while paying it down by half and then continually pay off balances month to month. Soon your business credit will start to rise.
After you have a solid business credit score banks are more likely to lend to your business directly.
At the end of the day, if you are determined enough, you can find funding for your business. Even if you have the worst of credit scores it is still possible.
Find help from someone who specializes in finding business loans for bad credit. They can help you navigate the waters and find the best fit to get you approved.
When looking for a professional make sure to read reviews, look at what they have available, and feel them out before using them.
Just because you have made some mistakes and drove your credit score down doesn’t mean you can’t be successful.
With hard work, diligent research, and some creative thinking you can obtain the money you need using business loans for bad credit.