Small Business Loans You Can Qualify for with Bad Credit Score

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SMALL BUSINESS LOANS YOU CAN QUALIFY FOR WITH
BAD CREDIT SCORE
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Lenders tend to offer favorable terms and lower
interest rates to borrowers with good credit
history. Getting quick access to available
financing options to sustain your small business
and improve poor credit is possible but tricky.
Regrettably, not every small business has an
excellent credit score to qualify for bank loans
at favorable terms and lower rates. If your small
business is unable to qualify for a bank loan,
where you can turn to?
Getting quick access to business financing
options with bad credit is difficult. With proper
research and understanding of available financing
options, you can get a business loan with bad
credit. Alternative lending is on the rise
offering personalized financing options to
businesses when banks are reluctant or unable to
provide access to financing to small businesses.
However, before accepting funding from
alternative lenders, you should be astute else,
you might get yourself into more debt.
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What factors do lenders consider when approving a
loan application?
When your small business needs funding, you might
first turn to banks and traditional institutions.
These lenders typically provide a range of from
term loans, SBA loans to lines of credit and
personal loans. Theses lenders take into account
different factors when approving a business loan
application, including
CREDIT SCORE
Credit score is the most crucial factor lenders
consider when evaluating borrower
creditworthiness and that includes your business
credit score and FICO credit score.
A FICO credit score is your personal credit
score, ranging from 300 to 850. The factors that
contribute to your FICO credit score includes
debt repayment history, length of credit history,
outstanding debts, and your current new lines of
credit.
A business credit score is the measure of a
businesss creditworthiness that you can check by
getting your business credit report from credit
bureaus (Equifax, Experian or Dun Bradstreet).
The standard factors that go into your
creditworthiness include credit utilization, time
in business, owners personal credit score and
the size of the business
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Debt-to-income ratio
Lenders use this ratio to determine your ability
to manage the monthly payments to repay a loan
you plan to borrow. To calculate this ratio, you
add up all your monthly debt payments and divide
them by your gross monthly income.
Liquidity
Different lenders have different liquidity
requirements for businesses. They want them to
maintain a few months worth of expenses in
reserves. Some might ask for three months of cash
reserves, while some for six months or more. It
provides a safety net to the lenders that if
something unforeseen happens, a business can
still manage the loan payments.
Collateral
Some lenders may require your valuable assets as
collateral to secure the loan in case you do not
have sufficient money at hand to make your loan
payments. The common assets used as collateral
are real estate, car, equipment or machinery.
Financial Statements
Almost every lender will require you to provide a
few months of your financial statements to
understand the financial strength of your
business. Lenders typically require this to
determine the loan rate.
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What are the types of small business loans you
can qualify with bad credit?
When your small business needs money and you have
a bad credit score, and conventional lenders are
not the option, you can get financing options
from alternative lenders or online lenders. With
these lenders, you can get quick access to
working capital at the flexible terms, fast
approvals and affordable interest rates.
The most common small business loans you can
qualify with bad credit scores include
Short-term Loans Lines of Credit
Collateralized Loans
Invoice Financing
Merchant Cash Advance
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You can get short-term loans for three years or
less and business lines of credit with one year
or less. These loans and credit lines are also
suitable for borrowers with good credit scores
because of their low cost and easy approval. If
your business is generating enough revenue and
has cash reserves, you can easily qualify for
short-term loans and credit lines even with a bad
credit score.
Short-term Loans Lines of Credit
You can also get collateralized loans with bad
credit. These loans are backed by collateral
making your credit score irrelevant for the
lenders in the approval process. The collateral
provides a safety net for the lenders in case you
default, the lender can seize the collateral and
sell it to recoup the loss.
Collateralized Loans
Invoice Financing is another suitable option for
bad credit borrowers. In this financing option,
you sell your unpaid accounts receivable to a
factoring company at a reduced rate (typically
ranging from 80 to 90 of the total value.). The
factoring advances you the money and typically
collects payments from the customers on your
behalf. Its also a suitable financing option for
seasonal businesses or when you need funding for
growth.
Invoice Financing
When you need quick cash, a merchant cash advance
(MCA) offers you a lump sum amount of money (plus
fees) in exchange for a percentage of your future
credit and debit card sales. It is not
technically a loan, instead, a type of financing
that is backed by your credit card revenue.
Merchant cash advances are the most expensive
financing option with very high APRs as high as
350.
Merchant Cash Advance
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Before you apply for any type of bad credit
business loan, do your homework and use due
diligence when finalizing a lender. Also, ensure
the lender is reputable and closely review the
loan agreement before signing on the dotted line.
And most importantly only apply for the money
you can realistically repay in the specified time.
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HOW TO REPAIR YOUR BAD CREDIT SCORE?
There are many benefits to repairing your poor
credit score even if you do qualify for a
business loan. Rebuilding a poor credit score is
a long and strenuous process, but once you start
working to improve it, you will be able to secure
better terms and lower rates on your bad credit
business loan.
The first step in repairing your poor credit
score is to stay current on your personal credit
payments. Maxing out on your credit card payments
can considerably affect your credit score. Even a
single missed payment or making minimum payments
can also significantly bring down your credit
score.
Repairing credit score can be an extremely
difficult process and typically necessitates
planning. You also need to scrutinize your
business debt service while maintaining your
personal credit score. A cash flow projection is
also important to manage cash reserves and decide
what to pay for.
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HOW TO REPAIR YOUR BAD CREDIT SCORE?
If youre short on cash, you can also ask your
suppliers to extend the payment schedules so you
can have the cushion to manage your monthly
payments. If youve worked with a lender before,
you can also renegotiate your repayment terms or
can secure more cash, provided your business is
on the road to financial recovery.
Bad credit is a vicious cycle and sometimes its
almost become impossible to evade. When things do
downhill, the cost of borrowing goes up, so you
have to evaluate how to stabilize your business.
Once you are able to sustain it, you can then
focus on credit repair.
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Financing can be a great tool to grow your small
business, but if used recklessly, it can become a
disaster for a cash-strapped business. In the
end, getting money should be a way to put your
business in a better place in the credit
spectrum. Therefore, when you plan to borrow
money in the future you can secure favorable
terms and lower interest rates on your business
loan application. Also, make sure you have a plan
in place for borrowing and communication with the
lenders, so you can be on your way to repairing
your credit.
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