- 1 Small Business Loans with Bad Credit
- 1.1 1. Learn About Business Credit
- 1.2 2. Develop a Plan
- 1.3 3. Check Out SBA Small Business Loans for Bad Credit
- 1.4 4. Check Out Unsecured Business Loans
- 1.5 5. Offer Collateral If Necessary
- 1.6 6. Use a Credit Booster
- 1.7 7. Improve Your Business and Personal Credit Rating
- 1.8 8. Don’t Combine Your Business and Personal Finances
Small Business Loans with Bad Credit
Believe it or not, you can get your small business loan application approved if you have bad credit. Unfortunately, it’s becoming a greater problem for small businesses to bad credit funding, especially if they have a troublesome credit history. However, even small businesses that are in good standing with their credit have a hard time getting loans, compared to larger companies.
Fortunately, there are plenty of other outlets for bad credit loans small businesses, other than standard banks. Although they are still vigorous about who they approve, it’s a better option for small businesses. To help you get started, below are eight tips to consider when applying for small business loans for bad credit.
1. Learn About Business Credit
Your personal credit score and your business credit score are two different things. When it comes to your personal credit, your score is rated by FICO. It can fall anywhere from 300 to 850 and the higher the number is, the better. Business credit calculated using a variation of the FICO rating called the FICO Liquid Credit Small Business Scoring Service. Your business credit score can range from zero to 300.
In order to have a business credit score, your company must have been open for a set amount of time. If your business has not been open long enough to gain its own credit score, your business credit score will be based on your personal score. The maximum score a new business can achieve is a 140. However, this score is likely unachievable unless you have excellent credit. If your score is below 620, your business credit score will be much lower. Even with excellent personal credit and a business credit score of 140, you may still have trouble finding a small business lender.
2. Develop a Plan
Think about how much money you need and why you need it. Understand these two questions can help you decide which business funding with bad credit is best for your small business. However, it also helps prevent you from borrowing too little or too much. Take a look at your business expenses throughout the year and evaluate what you can afford and which will help your business down the line. Not to mention, as a business owner, see which type of loan will help improve your credit for future borrowing.
Having some sort of plan in place will also help with proving your credibility to real estate lenders bad credit. For example, if you have bad credit, having a plan for your business can be your buffer to get your application for real estate loans for bad credit approved.
3. Check Out SBA Small Business Loans for Bad Credit
Getting a traditional bank loan is harder than it should be for business with bad credit. However, SBA can help out your business if you’re looking for a loan, even with bad credit scores. SBA is a great alternative to ordinary banks that try to help out small businesses with reasonable loans for business owners that have struggling credit.
Fortunately, there are a few different types of small business bad credit loans that the SBA offers. In fact, they even offer loans up to $35,000. However, there are still other government-based programs to help grow your business. There are even small business loans for women with bad credit, veterans, and minorities.
4. Check Out Unsecured Business Loans
There are plenty of small unsecured loans bad credit that you can check out for your company. Below are a few examples of what you can expect to receive:
– Business credit cards
– Revolving lines of credit
– Receivable finance options
5. Offer Collateral If Necessary
You may need to offer collateral in case you have bad credit to make you a less risky borrower. That is because collateral has more value than your signature. For example, if you don’t pay your small business loans for bad credit back based on the terms you agreed to, the bank or other financial institution can take your collateral. However, putting down collateral can also help improve your business credit down the line.
6. Use a Credit Booster
You boost your business’ creditworthiness by partnering with a business or individual who has excellent credit. This partner will be low-risk, thus increasing your likelihood of getting approved for your small business loan. However, this can be a risk for the person because, if your business defaults on the small business financing bad credit, they will be responsible for paying back the business funding with bad credit.
You can also think about hiring a formal business partner. The best potential business partner is someone who wants to invest in your business and who has excellent credit. This comes with its own disadvantages, though, as they will probably want a say in running your business.
7. Improve Your Business and Personal Credit Rating
Even though it is possible to get small business loan bad credit, you should still work on improving it. This will make it easier in the future to obtain an instant business loans bad credit or credit card if needed. You should also take steps to improve your personal credit score, as this can also reflect on your company. No matter what caused your bad credit, it is crucial that you take the steps necessary to improve it.
8. Don’t Combine Your Business and Personal Finances
There is a difference between using your own money to finance your new business and combining your business and personal finances. Contributing your own cash to your business is fairly common and even recommended. This practice is also known as bootstrapping. It can show potential lenders that you are trustworthy and willing to do what it takes to keep your business afloat. After all, if you are not willing to financially contribute to your business, why should anybody else? The important thing is that you use this money wisely for your business.
Keep in mind, your small business needs to function as its own, independent entity. This is true even if you have bad credit and must use your personal cash. It should also go without saying that you cannot use your personal business loans for bad credit for personal purchases. All of the money must go towards business expenses.