The old adage “it takes money to make money” couldn’t be truer in the world of entrepreneurship. Unfortunately, getting the money that you need to expand or sustain your business is not always going to be easy.
In some circumstances, you will be able to finance business endeavors with the revenue that your business is generating. Unfortunately, even seasoned business owners that are successful overall will have periods when they have no choice but to seek outside financing.
Unfortunately, it can be harder to get a business loan if you have a lower credit score. The average credit score is 711. However, many business owners have lower credit scores, because they tend to have variable incomes and often fall onto hard times.
Business owners with credit scores under 670 are considered to have “fair” credit. They have a more difficult time securing financing than those with “good”, “very good” or “excellent” credit. Business owners with even lower credit scores have an even harder time.
Fortunately, there are some ways that you can increase your chance of securing funding if you don’t have the best credit. Some important tips for securing bad credit business loans are listed below.
1) See if there are any errors on your credit report that need to be fixed
You might feel like you are fighting an uphill battle with a poor credit score. However, there is a possibility that your credit score shouldn’t be as low as it is.
One study from the FTC found that around 20% of all credit reports have at least one significant error. Resolving this error could be left your credit score. In some cases, that change could be profound and cause your credit score to increase enough that you could qualify for a loan.
You should pay close attention to your credit reports. If there are any errors on them, then you will want to get them fixed.
2) Mention any collateral that you have
Collateral is one of the “five C’s” of the actuarial decision-making process that lenders issuing business loans follow. Any physical assets that you have could help increase your chance of getting a loan if you are willing to put them up as collateral.
3) Carefully review lender credit score requirements before applying for a loan
Before you apply for a loan, you are going to need to see what the credit score requirements of each lender are. You do not want to submit an application if you know that you don’t meet the criteria. This is going to do more harm than good.
Why is it a bad idea to apply for a loan if you won’t qualify? Wouldn’t it make sense to give it a shot and apply to as many lenders as possible in case one of them wants to take a chance with you?
The problem is that lenders are going to conduct a hard credit check when reviewing your application. This is going to cause your credit score to drop even further. The decrease is going to be small with each application, but it can really add up if you submit a ton of loan applications.
You want to do your due diligence and find lenders that have a high likelihood of approving your application. This is going to minimize the risk that your credit score is going to drop from having too many unsuccessful applications.
4) Make sure that you have a very solid business plan
Your business plan is going to be an important management guide for you and your top-level subordinates. It is also going to be a key part of the loan application process.
Very few lenders are going to give you financing without looking at your business plan first. You need to make sure that all your ducks are in a row and your plan clearly articulates the strategy that you are pursuing. You also need accurate financial projections and a good cash flow analysis.
5) Don’t be modest with your credentials
“Character” is another one of the five C’s of the lending process. A lender isn’t just going to be issuing a loan to your company. They are also investing in you.
You need to tell them why you are qualified to run your business. They must see that you are competent and have the experience needed to guide your company to success so that you will be able to pay the loan back in the future.
