This article is for people who have bad credit because of no fault of their own. People with bad credit can get a small business loan, which should surprise and please many of you.
Now, the question is how to get these kinds of loans. So, keep reading....
Don't even think about going to banks, to be honest. If your personal credit score is below a certain limit, no bank worth its salt will give you a business loan. But business loans are about a lot more than just banks.
Your personal and business credit scores will still be important to other types of lenders, but not as much as they are to banks.
First, I'll talk about the credit score. In short, your credit score is a number that comes from an algorithm that credit reporting agencies use to figure out how creditworthy you are as a whole. The algorithm looks at several things that affect your overall score.
Aside from a low credit score, the following can also make you a bad candidate for credit:
- Recent Late Payments
- Credit Past Due
- Settlements and Loan Forgiveness
- Bankruptcy in the Past
- Numerous Credit Inquiries
- NSF Checks
Remember that the longer it has been since you missed a payment, the harder it will be for you to get any kind of loan.
Before you try to get a loan with bad credit, do the following:
- Make your business's own financial statements.
- Build up your business credit while you work on fixing your own credit.
- Keep your business credit separate from your bad personal credit by making a corporation or LLC and applying for an EIN (Employer Identification Number).
- Use your EIN to set up a business credit profile that is completely separate from your bad personal credit.
Asset-based lenders or cash flow-based lenders usually give out loans to people with bad credit.
Asset-based lenders give loans based on things like real estate or machines.
Asset-based lenders can charge a lot for loans to people with bad credit. They are also very strict if you don't pay back what you owe. By law, they take the assets you pledged as soon as possible to sell them.
How easy it is to get bad credit loans depends on the following:
- How well you can explain why and how you got bad credit and what you did to try to avoid it.
- How quickly you can pay back.
- The kind of assets and/or cash flow and how good they are.
A good alternative to this is a business cash advance:
You can also choose to get cash now. Business cash advance is not a loan, and the company that gives it gets its money from the business's credit card sales during a certain time period. This makes it easier for the business to pay back the loan, and the terms and conditions to get such a cash advance are also easy to meet.
There are a lot of places that offer these kinds of cash advances. Cash advances are often given by organisations like MerchantCashDirect to help with working capital needs. Most of the time, they go after certain industries. To add to the example of the organisation above: They want to give money to people in the restaurant, retail, or service industries who take in at least $4,000 per month in credit card sales.
You can't just wish away a bad credit history, but you can improve your financing options if you start paying your bills on time and get as much debt paid off as you can.
