Having bad credit can be a nightmare for someone who needs to obtain a business loan.
Creditors may see you as too risky, but you need the extra capital to support and grow your business. What can you do?
1. Try applying first
If you know you have bad credit but have not tried applying for a loan yet, do not give up hope. You still may qualify for one — in fact, many lenders cater specifically to people with bad credit.
Try applying for a basic business loan through your main financial institution to see if your credit is high enough. If you qualify, congratulations!
Even if you’re denied for a small business loans, many companies offer personal loans to individual borrowers as well.
2. Visit a smaller institution
Some large banks have strict policies about lending to businesses with bad credit and will not make exceptions.
If you were turned down, consider visiting a smaller local or regional bank or even a credit union that may be more willing to work with you. They can often make exceptions or give smaller loans than larger banks will.
Rather than applying online or via phone, go to the bank or credit union and meet with a lender to present your case for why your business loan is worth their investment. Good character counts.
“If they say no, make
sure to find out why.”
3. Consider special small business loans
If you still have not qualified, you may not be out of luck yet.
According to the U.S. Small Business Administration, “State and local economic development agencies as well as numerous nonprofit organizations provide low-interest loans to small business owners who may not qualify for traditional commercial loans.”
You can learn more about these options on sba.gov.
4. Apply for a business credit card
If no lending institution or agency will lend you money, and feedback has shown you it is due to bad credit, your next strategy should be to apply for a basic business credit card.
The benefits here are two-fold:
- A credit card offers you capital, essentially working as a loan.
- Responsible usage of the card will result in an improvement of your credit over time, making it more likely you can later qualify for a proper business loan. In order to reap the benefits, you must always pay your bills on time.
Do not aim for a fancy rewards card with bells and whistles, as many of those require good credit. Just look for a credit card with a reasonable APR that does not require excellent credit.
5. Prepare to increase your chances of success
When you apply for a business loan, whether at a large bank or small credit union, you absolutely must be prepared and professional to make a good impression.
You may be asked to show your business credit report, personal credit report, financial and bank statements, a business plan with cash flow projections, tax returns and even resumes of you and your management team.
You will also be asked questions you should be prepared to answer in advance. You will need to be able to explain exactly how the loan will be used, why you need it, what other debts you have and to whom, what assets need to be purchased and more.
You may need to fill these answers out in a paper application, but you might have to answer them in a phone call or in person.
Consider preparing and rehearsing your answers with your business partner or a trusted mentor so you can effectively tell your story and sell the lending institution on your business.
Photo source: websteronline.com.