How To Get a Small Business Loan With Bad Personal Credit?
Perhaps you thought a small business loan with bad credit is almost impossible! You were wrong. Yes, you can really get small business loan despite your bad credit. This article intends telling you how to get a small business loan with bad personal credit.
Do your homework
The first step towards reaching your goal is to find out your credit rating. You would know that attaining 640-680 on FICO means your credit rating is ‘fair’ and majority of American possess that. Anything lower than 640 is thought to be bad, while everything above 680 is indeed good. You can check your credit rating using any of the major agencies like Experian, Equifax, and TransUnion. However, it’s imperative for you to verify the report for any error or inaccuracy, which could worsen your score.
In case your credit rating happens to be low or is a borderline case, you need to start making efforts to improve the same. Get an internet account, a phone and a secured credit card in the name of your business. Ensure that credit bureaus get reports from these accounts. It’s vital for you to make timely payments. That puts you on track to improving your credit score.
Secured Loans for Small Business
Irrespective of their credit history almost anybody can get secured loan for small business. Secured loan means the lender is assured of getting his money back because of the collateral provided by the borrower, should he fail to payback the borrowed amount. Collateral may be by way of inventory, receivable amount, equipments or some property, which is seized if the borrower fails to payback the lender. The positive aspect of providing collateral is that the rate of chargeable interest is much lower, compared to unsecured loan.
Unsecured Loans for Small Business
Even owners of small businesses can avail of unsecured loans, despite their bad credit. This is like getting cash in advance against your prospective sales through credit card. The prerequisites for such a loan include having retail or service oriented business like a restaurant which recognizes credit cards. The borrower needs to give lender bank statements for six months along with statements of credit card and a valid lease agreement.
Since the risk involved with this type of lending is considerably more, the rate of interest is very high and may go up to thirty percent or even more. This may mean parting with your profits towards paying back the entire loan. Make sure that you can cope with such a situation and deal with a lender of good reputation.
Loans from Family and Friends
In case the banks refuse to offer your loan, it may be advisable to test out if any of your friends or a member of family is prepared to fund your business. If it is so, do make as formal an agreement as possible that is signed by all concerned and make payments like you would have paid to any bank. Taking loans from family and friends could hurt feelings at a later date, making it imperative for you to treat the entire deal in a thoroughly organized manner.
Be aware of the options available to you and find out just how bad is your credit score. Once you understand the prevailing financial circumstances, you will be better educated in deciding how to get a small business loan with bad personal credit that best meets with your requirements.