Here’s How You Can Get a Business Loan with Bad Credit
A Credit Score is a number that every American adult has. This number is related to a person and their ability to pay back credit or a loan. Banks often look at this number when deciding whether to give a person credit and if they agree to provide that credit, how it should be repaid. A credit score shows whether a person is a high risk or low risk when it comes to returning payments.
Credit Scores are Created and updated as you keep using your bank accounts, credit cards, and based on how many accounts you have. Credit reports are created for you by credit bureaus- the score can range from 300-850, depending on the way it is calculated. The scores are calculated based on factors such as loan repayments, credit card debt, and can even include student debt.
The score you are given also depends on your past payment history. So as you go on with repaying debt, or taking on more, your score can change. The score will also vary depending on what kind of credit you have taken- such as different types of loans, or how many credit cards you own.
While You May Have a Bad Credit Score, you may qualify for some loans. This may come in handy, especially if you are the owner of a small business. Many people still hold the belief that with a below-average credit rating, there is no way to secure a loan. However, bad credit business loans are a possibility.
What are your options with a bad credit rating?
For some business owners, taking a short-term loan is a possible alternative to a fully-fledged loan.
A short-term business loan allows lenders to:
- Set limitations on how long the loan lasts
- Select a repayment date
- Set the interest rate
Banks and lenders will check your credit rating before deciding whether they want to give you a loan. Therefore, knowing how your credit rating works is key to timing when you should ask for a loan.
To prove you can pay back a credit loan with bad credit history, you can add supporting documents to your cause. Documents that can show you are well within means to pay back a loan can include:
- Your tax return statements;
- Details of your employment history- including salary slips and proof of funds going into your bank account on a salaried basis;
- Your assets, including any property you own, any vehicles owned, or any other possessions of high value;
- Bank statements, bonds, or savings account details.
Proof of your ability to pay back a business loan even with bad credit can go a long way in helping you secure it. Since your credit history can vary, you must have proof of a steady income, provide supporting assets, and prove you have the ability to pay off a business loan.
When it comes to business loans, a creditor may look at what they can use as collateral. People can own more than just the money in their accounts, which is exactly what creditors look at when seeing whether a person should be given a loan. If you have bad credit, a way you can secure a loan is by providing valuable assets as collateral. However, one thing to note here is that if the loan is not able to be paid back, the collateral can be taken away from the debtor. While this is a dangerous step to take to secure a loan, this tactic is widely practiced around the world.
If your credit score is bad, you could get someone to co-sign the lease or loan for you. Having someone co-sign the loan or documents means they will be held liable to pay the loan back if you fail to do so. This allows banks or loaners to grant you the loan with full confidence that one way or another, they will get their money back. A co-signer, also known as a guarantor, needs to have a good credit score, assets, and the ability to pay back the loan.
You can opt for borrowing money from friends or family or crowdsourcing. A new trend to raise funds has been through crowdfunding via the internet. Websites allow you to state a cause and the amount of money you need for a certain project. The money is then donated by people who believe in your cause or who wish to see you succeed. This is a new fad that allows you to raise money regardless of your financial status or the number of assets you have. This money can be paid back at your own terms, which you can adjust based on your crowdsourcing profile. This is an option many young people choose as it allows them to pay back smaller loans over a set period.
This kind of loan is also known as peer to peer, or P2P lending as it from person to person. P2P lending is helpful for people as they are not limited to receiving loans from one institution, rather can receive payments from people around the world.
Regardless of credit ratings, there are many options available to people when it comes to taking out loans for their businesses. It takes a little time and research, however reaching an outcome is entirely possible!