Starting a business when you have bad credit may seem impossible. Banks may be reluctant to give you a small business loans with your poor credit, but don’t give up hope just yet. Here are some tips for how to get a small business loan despite your low credit score.
Assess Financial Needs
One of the biggest reasons that creditors will reject requests for small business loans is because your credit score isn’t high enough to support the loan requested. Go through your plan details and figure out where you can cut costs and lower the total loan amount. The less money you ask for, the more likely you’ll be approved for the loan. Ask your lender if they would consider giving you a loan at a lower amount.
Look at Small Business Association
The Small Business Association (SBA) offers opportunities to get loans when other banks have rejected you. 7(a) loans in particular give you the chance to get a loan without having great credit. These loans are government-guaranteed, and the SBA can provide you with a list of lenders who participate in the 7(a) loan program. However, before going to a lender, it is a good idea to approach the SBA to go over the best way to present your situation to the lender.
Collateral is what you would lose if you default on the loan. The more collateral you offer toward the loan, the higher the chance you’ll get the amount you request. By attaching collateral to the loan, you’re reducing the risk to the lender. Land, equipment, and other businesses you may own are the best forms of collateral to use for getting a small business loan. You may be able to put your home and other assets up for collateral as well. Keep in mind though that if you cannot pay, the lender will be able to seize whatever you offered.
Consider a Cash Advance
If you only need a few thousand dollars, you may consider taking out a merchant/business cash advance instead. This type of advance is great if you’re having cash flow issues, but you’re still receiving profit from your business. The higher the gain, the greater the advance you can receive.
Keep in mind that business cash advances can be a gamble. The advance given to you is in exchange for a certain share of your future credit or debit card sales. Before you choose a company, it is good to do your research to find a trustworthy company. Also, look closely at the interest you’ll be charged. Like a loan, you’ll be charged interest based on what you borrow, and the percentage may outweigh the price of the loan in the long run. A few great companies to turn to for business cash advances include Rapid Advance, Square Up, and CAN Capital. These companies offer lower interest rates and vast borrowing amounts so you can take what you need.