Are you planning to start a business but don’t have the credit to secure a loan? You might also notice that 60% of small business loan applications are rejected due to bad credit. However, don’t worry; there are ways to get a bad credit business loan.
This article will tell you the best ways to get a business loan despite bad credit. But your interest rates may be high, so ensure you read through several options before applying for a loan.
What is a bad credit score?
A credit score lets lenders understand how timely you are with your loan repayments. Typically, if you have a credit score between 800-900, you have an excellent credit score and are more likely to get a loan with the best offers easily.
Contrastingly, if you have a credit score between 300-549, it means you have a poor credit score. It informs the lender that you are more likely to miss payments quickly and have many credit inquiries. A bad credit score makes you a high-risk applicant for lenders.
However, it is not impossible to get a business loan with bad credit. Moreover, a bad credit score may stay on your credit report for two or three years, but you can work on improving it.
How to get a business loan with a bad credit score?
As mentioned above, you can get a business loan even with a bad credit score. Below are steps to improve your score or get a loan with the existing score.
1. Pay off your debts
Before you apply for a business loan, it is best to pay off your debts. Ensure you settle your accounts and pay any outstanding debts. You must also check your credit report to see if any amounts you have paid need to be written off.
Paying off your debts will ensure you boost your credit score, and your interest rates will disappear sooner.
2. Check your credit score.
Check your credit score when you want to apply for a business loan. This will help you know where you stand. You can rectify something before applying for a loan if something is misrepresented. That way, you might boost your chances of improving your credit score.
3. Take smaller loans
Take a smaller loan initially when you have a poor credit score. A lender will be willing to offer you a smaller cash amount loan to start. Once you pay that off, you build your credit score, so the lender will be more willing to give you a more significant amount.
However, note that interest rates will be high for bad credit loans.
4. Build your credit score
When looking for business loans with bad credit, it might be prudent to build your credit score first. You must look for errors in your credit report, pay off any debts, make more payments to clear the debts, and ensure you don’t miss a single payment.
5. Understand your eligibility
Once you have built your credit score, check your eligibility requirements for obtaining the business loan. You might need to consider the following before applying for the loans:
- What is your projected annual revenue is
- How much cash flow do you project
- What collateral can you give
- The longevity of your business
You must ensure you emphasize the areas in your business that will successfully get the loan.
Running a business successfully is challenging. Starting one has its perils. However, having bad credit probably kicks the challenge level a notch higher. That’s why a bad credit business loan helps you financially.
You merely need to ensure you pay off your old debts, apply for short-term loans, avoid missing payments, check your credit report regularly, and understand your eligibility requirements to get a business loan with bad credit.
Reading this article and researching various loan options will help you choose the right loan to kick-start your business.