How To Get A Business Loan With Bad Credit
11/18/2020
Andres Fernandez
5 Min Read
Let’s face it, running a business tends to get overwhelming. But running a business on bad credit gets really difficult at times, mostly if you’re in need of working capital. Having bad credit doesn’t necessarily mean you can’t repay a loan. Maybe you’ve went through some hard times and you’re ready to get back on your feet. Perhaps you’re ready to hire more employees to guarantee more sales or inventory. Lenders know many businesses go through this and they want to help, even with bad credit.
“Business loans can often be the defining factor that allows new business owners to fail or succeed, whether male or female. With enough start-up cash, new businesses are able to hire employees, buy equipment and supplies, and cover other major expenses like rent. Without enough funds, on the other hand, new businesses are bound to fail or struggle to get off the ground.” – TheSimpleDollar
Dear Businesses Who Have Bad Credit
Having a credit record that does not look pretty is nothing to be ashamed of. This does not mean the owner is a failure in their industry in anyway. According to the Small Business Administration (SBA), they confess that having a bad credit is also a result of economic crises. If you are reading this today, maybe the Coronavirus had an impact on your business. Don’t worry, keep your head high! We are about to teach you the utmost important tips to get a business loan with bad credit.
Create a Clear Achievable Plan – Here’s Why
Begin to evaluate yourself on what happened before that led to your current situation. Doing this will give you a clear idea as of how much you need and why you need the amount you are asking. Now keeping that in mind, start to see your business in the future and ask yourself what else along the road will I may encounter?
This will help you know how much capital you will currently need. Remember, evaluating your business needs (payroll, hiring new employees, equipment, debt, etc.) will dictate the amount of cash flow will be used in the future. Borrowing too much is very difficult, but borrowing too little won’t impact your current situation.
Now, start to understand your business cash flow. How are your income and expenditures been for the whole year? You are trying to impress the underwriters of your current financial situation to why you are capable in borrowing a loan and able repay it back within the terms you both agree on. Some lenders, like Capitalize Loans ask for the last 3 months of your bank statements, while others ask for a whole years worth.
Lenders want to know what the money you’re asking for is going to produce. They want to know what products or services you offer, how your competitive landscape looks like, and what you plan to use the money for.
Present a carefully thought out plan to impress them and to prove your business is serious about achieving those goals you have in your plan.
Factors Lenders Look For With Bad Credit
Like we said previously, do not stress if you have bad credit. This doesn’t mean you have no credit. There are a few factors lenders will have to consider if you have bad credit to become eligible. We will continue with the factors Capitalize Loans considers.
Monthly Revenue
Capitalize Loans will consider how much revenue you have done in the last three months of business. Typically, we ask for $10,000 of monthly revenue before taxes, to proceed with the following factors of eligibility.
Time In Business
We see potential in small businesses, even small businesses with bad credit. The start is always the hardest, but many businesses are successful early on. Take a look at the most profitable small businesses in 2020.
If you’re in any of these industries, we highly recommend you apply right away or use our free check rate.
Capitalize only ask for at least six months of business operations. Unlike other lenders, we tend to see from 1-3 years of business operations to be eligible for the minimum amount of capital to borrow.
Any Open Loan Positions
Almost all lenders ask if your business has any open loans and how much you still owe. This is important because all lenders do not like to give out loans to small business with bad credit that already have 3 or more open loans, but it all depends how much you owe. If you have an open loan, do not worry, you still can get a second position with a lender.
Staying Positive With Your Business Bank Account
This is probably one of the most important factors from any lending company that considers a small business loan with bad credit. Having a few negative days can hurt your probability of getting funded. Lenders see this as a risk factor due to the fact some repayment terms are daily or weekly. So make sure you stay up to date with your business bank account. Staying positive throughout the last three months is very eye-catching, and lenders will most definitely take action on your business, even with as small business with bad credit.
Loans Option For Your Small Business Loan
There many solutions for small business with bad credit, here are a few we provide that will help you:
Line of Credit
A small business line of credit helps entrepreneurs maintain consistent access to borrowed capital to keep up with recurring expenses. For the 50% of business owners who have experienced cash flow problems, a small business line of credit can be necessary to maintain regular business operations. The way this works is businesses are given a specific amount of capital. Also known as a revolving line of credit is similar to a credit card that you can access a credit line, make payments, and be able to access the credit line again.
Secured vs. Unsecured Line of Credit
There are two types of business lines of credit, a secured and an unsecured line of credit. A secured line of credit provides a reusable source of financing to help meet your financial objectives. It is guaranteed by an asset or collateral, such as a home or a car. Typically, a secured line of credit comes with a higher credit limit and a significantly lower interest rate.
Unlike an unsecured line of credit, it comes with greater risk, at least with the lending company, but better for you. A company like ours approve unsecured line of credit, not asking for collateral. With this being the case interest rates are typically higher than secured line of credit. These loans are considered if the company is well-established and has an excellent reputation.
Merchant Cash Advance
A merchant cash advance or MCA has historically been for businesses whose revenue comes primarily from credit and debit card sales, such as restaurants or retail stores. On the other hand, MCAs are available to other businesses that rely heavily of credit cards sales.
So, merchant cash advance are common in the workplace for loans due to the fact that they are quick, there is no collateral, and when sales are down, your payment will be too. As a small business with bad credit, this is a start but other options are available.
In Summary
There are trials and tribulations when it comes to having bad credit as small business owner. Yet, do not be fooled when someone tells you you cant take out a loan. There various of options and Capitalize Loans provides the best options, mostly for small businesses. If you are ready to take the next step in your business, make sure you take a look at all of our loan options we provide. We have resources such as credit loan calculators, how much you loan will cost you, and even a free rate check.
Important note to know about Capitalize — we do not ask for collateral, we do not ask for credit minimums, and we do not ask for any upfront fees. We do everything for the better of your business, because it all honesty every single business whether its a start-up or major corporation, has gone through the struggles. It’s about looking into the future, planning your response, and taking action to push the threshold of your current situation.
