Entrepreneurship is risky, and all ventures require some form of capital investment. In the earliest stages of business, owners may tap into their credit and savings to give their businesses a headstart. These and other factors can severely impact your personal and business credit. Even so, there are lenders who are willing to take a chance on riskier businesses and lenders. The trick is knowing how to get a business loan with bad credit.
How To Get a Bad Credit Business Loan With a Business Plan
Many entrepreneurs launch their businesses without ever creating a formal business plan. Sometimes, this works for them. However, if you plan to seek venture capital or a business loan, you need a business plan. How detailed you need to make it depends on the entity you’re pitching, but at least get the bones of the plan underway, including:
- Financial documents showing current performance
- Financial projections of cash flow and business operations
- Profiles on existing core members or workers
- Marketing and public relations plans
Why You Should Check Your Credit Score for Your Bad Credit Business Loan
Experian recommends checking your personal credit score before moving forward with bad credit business loans. Your credit score may not be as bad as you think it is, or you may not need to put in a lot of work to fix it. There are dozens of good apps on the market that can provide tips to help you improve your credit score in a few months. Common recommendations include the following:
- Dispute inaccuracies in your credit score or credit history.
- Catch up on payments for any delinquent accounts.
- Pay down debt to reduce credit utilization.
- Ask for credit increases wherever possible.
How Research Can Help You Get a Business Loan With Bad Credit
You can never know for sure what your options are before doing thorough research. Even if you have a good offer already on the table, shop around. If you have a formal offer from another lender, you might use it to get better offers from competitors. It’s important to note that “better” depends on your specific business needs. You are unlikely to get both a long pay-off term and a low rate, so decide ahead of time which option is more important to you.
These are some of the many bad credit loans you may find available:
- Invoice factoring
- Equipment financing
- Invoice financing
- Merchant cash advance
- Commercial lines of credit
Determine Your Collateral for a Business Loan With Bad Credit
You can sometimes secure much better rates with business or personal collateral. Not all lenders will take physical assets, but it is worth considering. Experian also recommends thinking twice about the assets you put up for a business loan. It points out that if you put your home up as collateral and the business fails, you might end up losing both the business and your home.
If your business has been operating for at least a year, you may have outstanding receivables or business equipment that you can offer as collateral. In some cases, an investment property may also be appropriate.
How a Co-signer Can Help You Get a Business Loan With Bad Credit
The more money you need to borrow and the lower your credit score, the more likely you need a cosigner. Finding a good cosigner may be difficult as other people may not feel comfortable accepting risk if you default on payments. If you have a business partner or are willing to build a relationship with one, this might help.
Ideally, your co-signer has a good credit score of 700 or more. Adding them to the application may help you get better terms. Depending on your credit history, the lender may recommend that you put the cosigner as the borrower and cosign on the loan instead.
Choose a Bad Credit Credit Business Loan Partner
Most lenders that offer bad credit business loans offer terms that could bankrupt a business. For the perk of no credit check, these companies may charge extremely high-interest rates and expect businesses to pay back the money in a short period.
At First Capital Business Finance, we take a more realistic approach to lending. As your financial partner, we provide bad credit truck loans, factoring, and working capital business loans. Contact us for more information.
Tips To Qualify For a Startup Business Loan with Bad Credit | First Capital Business Finance