Small Business Loans are Possible Even with Bad Credit
Posted: Oct 04, 2013
Your credit score does not only matter for your personal life, but also your business. When you are trying to figure out how to build business credit, you need to determine your personal credit rating. Your credit score says a lot about your financial history and the likelihood that you will pay your business debts on time. Investors will look at your personal credit to determine whether or not you are a good risk for them and to determine if you have good money habits. For those businesses that have good credit, new loans typically will not be a problem, as long as they are within reason. Business with bad credit, no credit or poor personal credit, on the other hand, could have a more difficult time, but it is not impossible!
Repair your Credit
The first step in obtaining small business loans with bad credit, which could be the lengthiest, is to start to repair your credit. This might seem like a daunting task, but investors, banks and credit card companies all want to see that you are current on your debts now and have a good get out of debt plan for yourself. This means you need to put your best foot forward, make good on all current debts and make your past credit mistakes become a part of your distant past. Each lender will have their own requirements regarding how long ago the bad credit needs to be, but starting a positive credit history now will definitely help.
One easy way to get a small business loan with bad credit is to have collateral available for the bank to use as leverage for your loan. Your collateral needs to be valuable assets. A few examples include real estate, automobiles or cash. These items give the bank a guarantee that they will be able to recover their investment, should you default on the loan for any reason.
Establish your Business
When you first start your business, it can be hard to find ways to get credit. Even if you have bad personal credit, you should be able to establish a phone number and an internet account in your business’ name. This allows you to start proving your worthiness by paying these bills on time. In addition, look around for a business credit card that you can apply for in your business’ name. This will allow you to start to build credit for your business, leaving your personal credit aside.
Look for Alternatives
When you are trying to figure out how to build business credit, you might have to get creative if you have bad credit. The avenues that are available to you are numerous including asking friends or family for financial assistance with the exchange of a formal contract, ask a family member to be a cosigner on the loan with you or to consult with the Small Business Administration to see what loan alternatives they might have for you. The Small Business Administration is a very valuable resource when it comes to running a small business; they could point you to a lender that helps businesses with poor credit or give you other resources to use in order to get up and running.
Have a Solid Business Plan
If you are just starting your business, you will need to present the lender with a solid business plan, especially if you have bad credit. The investors will want to see that you have a solid plan in place for the next few years to ensure that their investment is a solid one. If your business is already in existence, you will need to prove your business’ worthiness by proving its history and what the future will hold.
Your credit score says a lot about you and determines if you will be eligible for standard business loans. If you do not have good credit though, do not despair and wonder how to build business credit. With a little creative thinking and a few extra steps you will be able to obtain the business financing that you need to get your business up and running.
Jana Lynn is an active blogger who is fond of writing articles on Finance and educating people to monitor their credit report on regular basis to minimize the risk of fraud. Follow her on Twitter to know more on how to small business loans are possible even with bad credit.
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