Bad Credit Business Loans: A Simple Guide
A bad credit business loan may seem like a contradiction, but many business owners are faced with the prospect of poor credit and a need for capital. Bad credit can diminish your chances of securing a business loan. However, a bad credit business loan is possible if you know where to look and what steps to take.
Imagine that you are in the process of starting your company and are denied for a loan by the bank due to your personal credit history. What do you do? This shouldn’t deter you from pursuing your start-up, bad credit and a loan denial from a traditional bank does not mean you can’t get a loan. You just might be looking in the wrong place. Applying for a traditional bank loan with bad credit is likely the wrong place.
As a matter of fact, most businesses (even with good credit) are denied bank financing, as more than 50% of new businesses loan applications are denied by banks. More and more, non-bank lenders are making a larger percentage of business loans.
There are still steps you can take in order to get your business back on the right track, and most importantly, to start building up your current credit score. For example, if you have interest rates on business loans, it is crucial that you pay the necessary funds back before the monthly deadline, and before the interest rates grow even bigger.
The very first approach you should have taken is to maintain a good credit score to begin with, but if this option has already slipped through your fingers, the points below will clearly outline how you can get back on the right financial course.
Importance of good credit
Your credit score determines the types of loans you receive, and this is particularly important when it comes to business needs. If you go to the bank for the purpose of acquiring commercial loans, you could be turned away if that institution does not like the state of your credit score.
Furthermore, the interest rate for business loan you receive is determined by your credit standing. In other words, the better your score, the less the interest will be, while your loan can also be significantly higher.
Now, imagine you want to lease a particular office space that is bigger and fits the needs of your company to the very last detail. You will not receive this dream space, if your credit score is not good.
Achieving financial success with bad credit
If you are currently faced with a situation where you have bad credit, there are still a number of steps you can take in order to achieve financial success. This includes:
1. Bad credit business loans
If you research long and hard enough, you will find at least one financial institution that will offer you a loan, despite the current state of your credit. This is known as bad credit loans; however, you must be mindful of what the interest rate on these are.
There is a good chance that you will have to pay back a hefty sum every single month, on these types of loans.
2. Building up the credit score
The good news is that if you give it enough time, there is always an opportunity to build up your personal credit score.
Firstly, you should differentiate your personal and business funds, and thus have two separate bank accounts opened. It is incredibly important that you never max out your credit cards, and instead, put the necessary funds back on it.
Your credit score will not be boosted over the span of a few nights, but if you remain consistent with your payments and never over-do it, you will reach a point of financial stability that will benefit you and your business.
3. Building up good relations with investors
Investors are individuals that provide funds towards your company’s idea due to the fact that they see the value in it. You must learn how to woo an investor with your idea, but more so build a good relationship with them such that they will even assist you in future business ventures.
Make a point of listening to these individual’s advice and show them just how profitable your business can be with the actions that you take to achieve this.
4. Seeking help from friends and family
Getting financial help, or money donations from friends and family is yet another option to fund your business, although you should be careful about mixing loved ones with business ventures.
Remember to be transparent and disclose everything that you hope to achieve with your company, as well as be realistic on how much profit you expect to make with it.
The popularity of your business idea
The popularity of your business idea will always play a major role in your ability to get the necessary funds. The following quote summarizes this point clearly:
How many people will benefit from the company you have started? Even if you were not able to get a loan from a bank due to bad credit, you could get the funds from crowdfunding or, of course, an investor, if people believe that the product or service you are offering will be used by consumers far and wide.
Be transparent and pay back funds on time
Remember that if you get business loans, you always have to be transparent and disclose any previous bad credit. Of course, banks can easily see this, but when it comes to receiving money from other individuals, you need to be realistic about what you can achieve with your company during a specific timeline.
In the event that you have received the necessary loan from a bank, you have to always make an active effort to pay back the funds on time, and not accumulate interest rates that go far beyond what you can afford. If you don’t give up on your business and give yourself enough time to steer it on the right course, you will reap the benefits of your success.
If you are an aspiring business owner, or even currently have a company that you are responsible for, bad credit should not stop you from achieving your goals. It will take some time, especially at the beginning, to build your credit score up again, but it will happen in no time, especially if you stick to an approach where you pay any interest rates for business loans off and in advance. Remember not to give up on maintaining good financial standing and you will notice a difference to your current credit score in no time.