How to Get a Business Loan with Bad Credit
When running your own business, there’s a range of challenges you’re likely to face, one of the most notable being money management.
To grow your business and make it a success, you’re going to need to have funds available to invest back into your company. This is where small business loans come in. You can use these loans to invest in growth, hire and train staff, or diversify your services. But there is a factor to consider that may hinder your chances of approval – your credit score. Read on to find out more about how you can benefit from a business loan even if you have a less-than-perfect credit score.
Consider an alternative lender
Just like applying for a personal loan, a bank or traditional lender may not be able to lend to you if you have a low business credit score as this poses more of a risk to the lender. To increase your chances of approval, you could look to alternative lenders to help you. You could research business loans offered by online lenders with more lenient approval requirements and an easy application process, or you could choose to work with a credit union that may be able to help.
Find a co-signer
If you’re struggling to get approved for a business loan due to a low credit score, you could choose to enlist the help of a co-signer. A co-signer is someone that has a higher credit score than you that can sign on the loan to increase your chances of approval. Before you choose a co-signer, you should ensure they’re aware of the responsibility that comes with it. If you can’t pay back your business loan, the responsibility then falls to them to pay the outstanding balance. Your co-signer could be close family or a partner, but make sure you discuss this at length with them first.
Improve your credit score
If you need a business loan in the future, take steps to improve your credit score before you apply. You can do this by ensuring you’re paying off your outstanding loans on time, whether that’s suppliers or rent payments. You should also check your credit report to ensure there are no mistakes, as something as small as a misspelt name could have an impact on your score. Paying down your debt also shows lenders that you’re trying to improve your situation and stands you in a better position when it comes to approval.
Create a business plan
Some business loan lenders require a business plan for confirmation as to whether you’ll be able to pay off the loan in the future. A business plan allows lenders to get an in-depth knowledge of how your business works, your goals, and projections for growth. They may also ask for an outline of how you intend to use the additional cash. Creating a business plan before you apply for a loan will speed up the process and also improve your chances of being approved for the finance you’re looking for.
Reduce loan amount
If you have a low credit score, you may struggle to be approved for a large loan amount. To improve your chances, review what you’re hoping to use your loan for and determine whether you can afford to reduce this amount. The lower the amount, the more likely you are to be approved, even with a low credit score. This is because a smaller loan is easier and more manageable to pay off. As well as this, once you’ve repaid this loan on time and in full, this will be reflected in your credit score and you may be eligible for a larger loan in the future.
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