The world of small business financing has changed dramatically over the last few years. With banks tightening their purse strings, fewer startups have access to the traditional methods of getting a loan. However, there are still some options if you are wondering how to get a business loan with bad credit. The following tips will help you get your business off the ground with a small business loan:
Repair Your Credit
According to experts at Lantern by SoFi, “For personal credit scores, FICO® Scores below 669 are generally considered either fair or bad. VantageScore, another scoring model used by lenders, considers scores between 500 and 600 poor, and scores between 300 and 499 very poor.”
It would be best if you did a few things to straighten your credit report. First, check it. You can get a free copy of your credit report by visiting annualcreditreport.com and requesting one from all three major credit bureaus: Experian, TransUnion and Equifax.
Once you have the reports, look them over carefully and note any errors. If there are any mistakes, contact the credit bureau and ask them to fix them; they’ll usually be happy to oblige as long as you’re polite.
Make A Detailed Business Plan
The most crucial part of getting a business loan with bad credit is making a detailed business plan. You’ll need to include the basics, such as the name of your business and what type of business you’re opening up. It would help if you also wrote down where you want to open up shop, how much money you need for start-up costs, and how much profit you hope to make after a certain amount of time has passed.
Get A Co-Signer
Getting a co-signer can be the easiest way to get approved for a loan. The idea is that the borrower has someone who’s financially responsible, such as a parent or spouse, who will guarantee the loan and take responsibility if you don’t pay it back.
There are some downsides to getting a co-signer
- They will have to pay off your debts should you default on payments.
- They may not want to sign if they know they aren’t going to benefit from your success, and it can cause tension in relationships.
Small Business Association Guarantees
The SBA’s program is limited to banks and credit unions, so you will need to find one of these lenders to apply for this financing. It’s not as common as other forms of credit, but it has several advantages.
You can use a small business association guarantee as collateral if you want to take out another loan or source of capital later down the road. This helps establish your credibility with potential investors and lenders who may be skeptical because you don’t have any history working with them yet.
Adapt To The New Norms
One of the most important things to remember when trying to get a startup loan is that new norms are in place. Banks have tightened their belts and made it harder for people to get loans, regardless of credit history. For example, if you have an established business with an excellent track record but don’t have collateral or other assets that would appeal to banks, you may be turned down for a standard small business loan.
As you can see, there are plenty of options for borrowers with bad credit. The key is to research which option is best for your situation and make sure you’re applying for an affordable loan.