Can a bad credit score somehow still manage to get you a business loan? Well, yes it can. Let's break it down. First off, what's bad credit?
In basic terms, your credit is labeled as 'bad' if it remains within the range of 300 - 629 units. It simply tells your bank you have been unable to properly manage your funds, therefore, investing in your business is risky.
However, it’s not the end of the road yet, with a bad credit score you could still get a good loan to start your business with.
How is this done?
Instead of borrowing from traditional banks, seek alternative lenders, they provide options that benefit low credit borrowers as much as it does regular borrowers.
Some of them require a credit score of 500 to 650 minimum, while others don't pay attention to credit score at all. If that be the case however other features might not be as favourable as would have been with regular borrowers.
These other features include:
For an applicant with a low credit score, interest rates often goes as high as 20% to 30% as compared against the usual 7% to 10%.
Annual Minimum Income
Some alternative lenders would require you to have a certain minimum of annual income that doesn't flicker.
Some lenders only examine your credit score but actually base your loan eligibility on the value of your invoices, perhaps you have some unpaid ones that could instantly be converted to cash for you.
It is noteworthy that the three factors stated above, are specific for lenders that don’t lay emphasis on credit score.
How to stay on top of the game
1. Study your lender of choice before applying
For small business loans, maneuvering your way with a bad credit score could be a bit of work, so the first thing to do is to study your lender of interest. Several lenders are available and their screening criteria vary.
On average, their key features still ring around debt, cash flow, credit score, and revenue.
The uglier your debts look; the more streamlined are your chances of getting funded. While this may not be general criteria among lenders, it’s something they all look out for.
A properly managed high cash flow is sure to attract your lender’s interest, anything less than this reduces your chances of acceptance
This is the single factor that shadows the rest. It determines your ability to pay a lender back, therefore, it often takes precedence. An evidently growing revenue shifts your lender’s interest n your favour.
If you are able to properly manage these four factors, you are closer to getting funded than you think.
2. Be sure to meet their secondary conditions.
After learning your lender’s operations, be sure to meet their demands. These demands are like the second stage of screening which some lenders may use as a disqualifying factor if they are not met.
The secondary conditions include:
Clean Borrowing Records
If the record books show you still owe another lender; you most likely won’t be getting any other funds from your new lender.
Active business time
This may vary, usually around a couple of months to a year.
Minimum monthly revenue
Particularly lenders that don’t pay attention to your low credit score, you may be required to have a monthly income of about $8,000 or more.
3. Assess your choices
After all that is written above have been kept in place, you should take some time to see what funding methods are most tenable now.
Become familiar with available loan products such as:
Uncensored business loan,
A business line of credit or
So there you go; the blueprints to secure a business loan despite a low credit score. By putting all these in place you are sure to find a reliable lender with a great offer.