Obtaining financing for a business is quite challenging for a lot of entrepreneurs. But obtaining small business loans for bad credit? That’s much worse. It’s like jumping from frying pan to fire, as the popular saying goes.
But a poor credit score is not the end of the world. You can still get a business loan regardless of your credit score. So, how do you soar against all odds and apply for a business loan with a poor credit score? This article will show you exactly how to do so.
Differentiate your personal credit from your business credit
The first thing to do is to separate your personal credit score from your business credit score. So, even if your personal credit is bad, your business credit can give you another chance of obtaining a good loan. Have a new bank account for your business and never use the account to pay for personal expenses.
Look for alternate lenders
Banks and traditional lenders may not be willing to give you a business loan due to your bad credit score. Some alternate lenders will gladly loan you money. Look for these lenders, check their requirements and apply for their small business loans for bad credit. These lenders will lend you the money and help you to improve your credit score.
Look for alternate business funding
Small business loans are not the only means of business funding. You can go for a merchant cash advance, business credit cards, private business grants, government business grants, seed funding, crowdfunding, venture capitalists, angel investments, pitch competitions, bootstrapping, business line of credit, equipment financing, invoice financing, etc.
All these alternate funding sources have various requirements and application processes. But they will consider you even with your bad credit. They don’t take your credit history as important as conventional lenders.
Work on improving your credit score
Now that you know that your credit score is bad, you can’t just leave things like that. You need to take concrete steps to improve your credit score. Pay your bills on time. Payment history affects credit scores the most, and late payments can affect your credit history for up to 7 years. Set up autopay for recurring bills so you won’t forget to make any payments.
If you miss any payment by over 30 days, contact the creditor immediately and make arrangements for payment so that the creditor won’t report the missed payment. If you have too many bills due on the same date, you can work with your creditors to change the payment dates.
Make frequent payments much as you can. Pay little sums of money so that your credit utilization score can increase. Credit utilization is the second most significant factor that affects credit score after payment history.
Do all these, and remember to check your credit history constantly. If you detect errors or inconsistencies in your credit report, report them immediately. Once your credit history has improved, the probability that your loan will be approved will increase, and you can try to apply for a small business loan again
The methods listed above will help you obtain small business loans for bad credit. Once you obtain the loan, pay the money back steadily and do all you can not miss any payment. Don’t be too desperate to get the loan, as desperation can push you to accept loans with ridiculous interest rates that will cause more problems for you and make it harder to keep up with payments. That could even worsen your credit score. Get a loan from a good source, work your way back up steadily and improve your credit score.