Bad credit can be a major barrier to securing a small business loan. Lenders are typically reluctant to approve loans for businesses with poor credit histories, as they view them as high-risk borrowers says Thomas J Powell.
However, there are a few things you can do to improve your chances of getting approved for a bad credit small business loan.
1. Know Your Credit Score
The first step is to find out what your credit score is and get a copy of your credit report. This will give you an idea of where you stand and what areas need improvement. You can get free copies of your credit report from the three major credit bureaus (Experian, TransUnion’s, and Equifax) once per year at AnnualCreditReport.com.
2. Review Your Credit Report for Errors
Once you have your credit report, review it carefully to look for any errors. If you find any, dispute them with the credit bureau. This can help improve your credit score and increase your chances of getting approved for a loan.
3. Improve Your Credit Score
If your credit score is low, there are a few things you can do to try to improve it. One option is to make sure you pay all of your bills on time, every month. You can also try to reduce your debt-to-income ratio by paying down some of your debts. Another option is to open a new line of credit and make timely payments on it to help build up your credit history.
4. Find a Lender That Works with Bad Credit
Not all lenders are willing to work with borrowers with bad credit. However, there are some that specialize in bad credit loans. Thomas J Powell says these lenders may be more likely to approve your loan and may offer more flexible terms than traditional lenders.
5. Get a Cosigner
If you can’t qualify for a loan on your own, another option is to find a cosigner with good credit. This person will agree to repay the loan if you default on it. Having a cosigner can improve your chances of getting approved and may help you get better loan terms.
6. Offer Collateral
Another way to improve your chances of getting approved for a bad credit small business loan is to offer collateral. This can be any asset that you own, such as a piece of property or a vehicle. Offering collateral shows the lender that you’re willing to risk something of value in order to get the loan, which may make them more likely to approve it.
7. Have a Solid Business Plan
When you apply for a small business loan, the lender will want to see a well-thought-out business plan. This should include information on your business goals, financial projections, and how you intend to use the loan funds. Having a solid business plan shows the lender that you’re serious about your business and are more likely to repay the loan explains Thomas J Powell.
8. Provide Personal Guarantees
Another way to reduce risk for the lender is to provide personal guarantees. This means that you agree to personally repay the loan if your business is unable to. This can be a good option if you have bad credit but strong personal finances.
9. Have a Good Business History
If you’ve been in business for awhile, have a good track record of sales and profitability, and have solid financial statements, this can help offset some of the risk associated with bad credit. Lenders may be more willing to approve a loan for a business with a good history than one with bad credit but no history.
10. SBA-Guaranteed Loans
The Small Business Administration (SBA) offers guaranteed loans for businesses that meet certain criteria. These loans are made by participating lenders and backed by the SBA, which means there is less risk for the lender. As a result, you may be able to get better loan terms, such as a lower interest rate.
Conclusion:
Bad credit can make it difficult to get approved for a small business loan says Thomas J Powell. However, there are things you can do to improve your chances of getting approved. These include knowing your credit score, reviewing your credit report for errors, improving your credit score, finding a lender that works with bad credit, getting a cosigner, offering collateral, having a solid business plan, providing personal guarantees, and having a good business history. You may also be able to get approved for an SBA-guaranteed loan.
