Applying for Business Loans If You Have Bad Credit
Perhaps you’ve had some bad luck with your finances before, resulting in a drop of your credit rating. Now you’re thinking of starting a business, and one of the concerns is whether or not you will be able to get a business loan with poor credit history. There’s good news and bad news.
The good news is that it is possible to get approved for business loans despite having a low credit score. Many lending companies these days offer special loans to individuals with bad credit, and the procedure for applying for these loans is not difficult either. The bad news, though, is that the interest rates on business loans for people who have poor credit are higher compared to those for people with excellent credit.
Making the Most of a Bad Situation
In addition to having a high interest rate, a bad credit business loan is subject to more expensive processing fees, closing costs, and other fees, all due to a poor credit history. However, you don’t really have much choice but to accept whatever terms the lender is offering.
After all, if you look at it from the lender’s point of view, granting you a loan is a huge risk on their part. You can’t blame the lender for imposing steep fees for security. All you can do is improve the way you manage your money and make payments on time so you can improve your rating and possibly qualify for better interest rates in the future.
How to Apply for a Secured Business Loan
One of the easiest ways to get a business loan if you have bad credit is to apply for a secured loan. Lending companies are quite open to giving out secured loans to anyone because this type of loan carries less risk than an unsecured loan. However, in order to be approved for such a loan, you will have to put up an asset or property as collateral. If you are unable to repay your loan for some reason, the lender can simply take ownership of your collateral.
Improving Your Credit Rating
Another way to get good interest rates on a business loan is to wait for a few months before applying for the loan, during which you can work to improve your credit rating. Pay all your bills on time, maintain flawless banking transactions, and try to pay off as much of your existing debt as you can. Even if your credit history is bad, recent positive actions will show lenders you have been working on improving your credit worthiness.
They show you are being more responsible with your finances, increasing the odds of lenders approving your business loan application. Once you have the necessary funds to start your business, remember to pay on time. Never miss a payment. Doing so will only make the situation worse and make it even harder for you to get more business loans in the future.
Alternatives
Don’t forget to seek out alternatives to bank loans, such as peer to peer lending. The Internet Age has spawned many creative funding avenues that did not previously exist. The best example of this is Kickstarter. Kickstarter is the largest funding platform for creative projects in the world. This website draws in thousands of people with private capital who are willing to fund creative projects in every field imaginable, and project creators keep 100% ownership and control over their work.
Whether you seek out traditional or more creative avenues to fund your venture, you should not let a bad credit situation stop your plans. Just be sure to focus your efforts on continuously improving your business credit profile while also building your business.
