Do you have poor credit yet need to access additional funds for your business urgently? Well, finding a reliable source of business funding can be difficult to start with and having poor credit may make it even harder for you to secure business funds.
Here’s how to get a small business loan with poor credit;
Look for an alternative lender
Alternative lending enables you to access a variety of loan options outside of a conventional bank loan to help you meet your business needs. Having poor credit may threaten your chances of getting a business loan through a traditional bank. Alternative lenders however, may overlook your bad credit history and offer you a business loan in exchange for collateral such as outstanding invoices and real estate. Most alternative lenders offer smaller loan amounts and may charge higher interest rates for business loans with poor credit. Typically, alternative lenders offer more lenient loan assessment criteria. Their loan approval and repayment schedules are generally flexible compared to their conventional banking counterparts.
Gather documents for bad credit business loans
Regardless of your poor credit score, you should gather all the necessary documents that your potential lenders need. Mentioned below are the documents that must be produced to avail a small business loan:
- Background check documents – Government ID proof, Address Proof, Education Certificates
- Bank Statements – Savings and Current account statements of the past year
- Business plan – Description of Business, detailed financial projections, marketing, and sales strategy.
- Personal Credit report (and Business Credit report)
- Income tax returns for the past three years
- Documentation of Collateral, which should be on your name
- Other Contract and legal documents – Business licenses and Registrations, Franchise agreement, Lease of Business equipment and building, contract with clients or suppliers.
These documents can significantly influence your loan approval depending on your prospective lender. The type of documents required may vary from one lender to another, hence, it is important to consult appropriately with your prospective lender to know what to avail during loan application.
Having poor credit score may discourage many lenders from considering your loan application. This is because they would be sceptical about your ability to pay off your loan. Normally, a poor credit score indicates that you have had issues with your loan repayments in the past. Suppose accessing unsecured business funding becomes a daunting task, you can opt for a secured business loan. In this case, you will need to provide collateral to access funding. Providing collateral can increase your lenders’ confidence and show them that you are committed to repaying the loan. The value of your business asset to be provided as security may determine the loan amount you qualify for. Business assets of higher value could qualify you for higher loan amounts while those of lower value could limit the loan amount you can borrow.
Opt for Microloans
Micro loans are small, short-term loans usually available to entrepreneurs or small business owners that require cash if necessary. They are generally available at low interest rates.They can allow small business owners to access funds regardless of their credit. Some lenders offer microloans ranging from $5,000 to $25,000.
Gifts and Scholarship Programs
This is an option that is seasonal, or you need to grab the opportunity at the right time. The government and or a few Multi-National Organisations or NGOs release certain programs to encourage small business entrepreneurs, with zero investment. Your ideas and project should excel in comparison to others for easy and free capital investment for your small business.
Check your personal credit score
Having a poor credit score may not mean that the fault lies with you. You may have been paying off your personal debts on time yet the credit bureaus have been inaccurate in producing your credit report. When looking to get small business loans with poor credit, you should first check your personal credit by consulting various credit bureaus to confirm whether or not your credit report is correct and accurate. In the event of errors, consider filing a complaint. Commonly, borrowers tend to encounter issues with their personal credit scores when they correct their initially poor credit scores by finally paying off their debts. Sometimes, the credit bureaus may delay to update your credit score after clearing your debt, consequently giving a negative image to your potential lenders. Filing a complaint updates or reminds the credit bureaus about your improved credit record.
The presence of many alternative lenders has made it easier to access business loans with poor credit. You need to choose the right funding option for your business and assess the loan terms of your potential lenders before applying.