Your cubicles are busting at the seems, and your new assistant had to set up shop in the kitchen. Sounds like you’ve outgrown your initial office location. Or maybe you run a restaurant or retail store, and you have more customers in and out than you fit inside your space.
While it’s true that not every reason is good to go into debt for your business, that doesn’t mean that good reasons don’t exit. If your Business is ready to take a reap. But you don’t have the working capital to do so.
Lack of funding is one of the primary reasons why small businesses fail. If you have bad credit, you can still qualify for financing-you just need to know what your options are and how to prepare the application.
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Why your credit score matters.
Lenders, use your credit score as a metric for measuring risk. The lower your score is, the riskier you and your business appear.
Traditional lenders (banks and credit Unions) generally look for a minimum credit score of 650, with any requiring a higher score. Before approving your application. This isn’t hard and fast rule, but it at least provides a benchmark excluding all other factors.
For business that has operating for more than a year; your personal credit score will be the only thing considered. And for better or worse, your personal credit score is typically tied to your business. Even after you established a business credit profile. This means that both credit scores will be considered In a loan application if you’ve been in business for more than a year, with specific lenders weighing one profile more heavily than another.
How to improve your credit score for future loans.
In a mantra and Navy survey, 72 percent of small business owner respondents said they don’t know where to find it. And as said before, that your business credit score, on the other hand, represents the strength of your business of your business as a candidate for a loan, it’s based on your company’s financial history and is calculated by looking at your payment history with vectors.
Getting this information is the first step to improve your business credit score. You can obtain your score for a fee from the business credit reporting agencies, dun&Bradstreet, Equifax, and experian. Your score can vary depending on the agency;
Luckily, acquiring amd paying off a loan or alternative funding, even if it’s not best option available, will play into improving your credit. But to really improves your chances. You may want to implement the following ideas.
- Make payment early on time: start paying bills on time, while this advise sounds like a no-brainer, it’s not uncommon to get busy with your day-to-day responsibilities and let bookkeeping task fall through the cracks. Lenders are interested on your reliably, you pay bills and use it as a predictor of how likely you are to make further payments whenever possible and bring any outstanding balances up to current as soon as possible.
- Avoid opening multiple lines of credit: one of the easiest way to improve your credit is minimizing the number of new credit limes. Or loans you take out within a short period of time. Applying for credit requires a hard inquiry on your credit report. This can be detrimental if it happens too often and will stay on your history for up to 2 years.
- Report any wrong information: start by closely reviewing the reports, looking for inaccurate information if you see anything on yours that’s wrong. Such as an unpaid debt that you did pay. Call the credit reporting agency and dispute it. The lender then has 30 days to verify the information in your file or will be removed. This is a critical first step for improving your score.
- Separate business and personal expense: as mentioned before, your personal and business credit history will be looked into when applying for a business loan. But as your business becomes more established. Your business credit history will carry more weight. If you have bad personal credit, it will benefits your separate and establish a clean credit history under your company name.
There are three type of loan you can get with bad credit score.
- Equipment-based financing: if you’re in a line of business that requires certain equipment to operate, upgrading or purchasing new equipment is pretty necessary step. If you’re wondering how to get a small business loan with bad credit, the good news is that you can use the equipment to secure financing as well. Using the equipment itself as collateral is the reason a lot business owners with bad credit can secure the financing without being a risk in the eyes of the lender. The lender can immediately pull the equipment that they are providing for you. Whether you’re leading or purchasing it. Once you default on payments you may need to put in a little down payment with some lenders if you have bad credit.
- Microloan: a micro loan is similar to traditional bank loan, but they often come from alternative lenders like credit Unions. A microloan tends to be easier to get for those with subpar credit because the loan amounts, as the name indicates, are small, typically fifty thousand dollars or less. Because of this, the credit requirements for these loans are also lower. If this amounts of funding suits your needs, this is a great option, the SBA has a micro loan program!, and there are several alternative lending option available such as Kiva and Accion.
- Business credit card: if you can secure a credit card in your company name and make purchases and on time payments. You can get financing and start building good business credit at same time. Of courde, the credit limit, interest rate, and terms of payment will vary, and each bank or credit Union will have eligibility requirement. So this option will not work for everyone.