7 Tips On How To Get A Small Business Loan With Bad Credit
In the world of small business loans, good credit is king. Therefore, getting approved for a small business loan if you have bad credit is extremely difficult. However, many small business owners and entrepreneurs trying to get a start-up business off the ground do not have stellar credit profiles. This could be because they have a history of bad credit decisions. Or it could simply be because they have not yet established a significant credit profile.
The good news is that there are a few ways for those with bad credit to secure a small business loan or a personal loan to fund their business operations. Here are seven ways you might be able to secure a small business or personal loan.
Talk To The Small Business Administration
If you have bad credit, the first step you should take when trying to secure a small business loan is to speak to someone at the U.S. Small Business Administration (SBA). The SBA has several loan programs that are designed to help smaller business owners and entrepreneurs secure small business loans.
You should be aware that the SBA will have credit profile requirements that must be met in order to qualify for their loan programs. Depending on how bad your credit is, you might not qualify for any of their programs. However, even if you do not qualify for their lending programs, the SBA may be able to help you secure financing from other sources.
Secure Your Loan With Assets
Another way to get financing for your small business is to secure your small business loan with assets. If you secure a loan with assets, in the event that you are unable to repay the loan, your lender can seize and sell the assets securing the loan to obtain repayment. Because these assets offer additional security, some lenders could get comfortable giving you a small business loan.
If your small business already has assets such as buildings or machinery, you might be able to use them to secure your small business loan. Keep in mind that if you default on the loan, your lender will have the right to sell those assets.
If you do not have any business assets, you might be able to use personal assets to secure your loan. The most common asset to use is your house. However, some people are wary of doing this because if they default on their business loan, they could lose their home. If you use your home to secure your small business loan, make sure you fully understand what your lender’s rights are if you default on the loan.
Personally Guarantee Your Loan
Another way you might be able to get a small business loan is to personally guarantee the loan. If you have a significant amount of assets, some lenders could get comfortable giving you a loan if you personally guarantee it. A personal guarantee means that you promise to do whatever it takes, including selling off some or all of your personal assets, to make sure that you do not default on your loan.
Borrow Money From Your Family Or Friends
If you cannot find any lenders for your small business loan, consider asking your friends and family for a personal loan. Your family and friends might be able to offer you more favorable loan terms than a bank or other lender.
Seek Out Non-Traditional Lenders
If traditional banks are telling you to take a hike, you might want to seek out non-traditional lenders that specialize in making bad credit loans. There are multiple online lenders that specialize in making bad credit loans. There are also websites, such as LendingClub.com, which can set you up with individuals who might be willing to make you a personal loan.
With non-traditional lenders, there are several things that you should be aware of. First, you should note that you will likely have to pay high interest rates on bad credit loans. Second, there are a lot of con artists out there so make sure that you thoroughly research any lender you are considering doing business with. Finally, many non-traditional lenders tend to limit the amount of money that they will lend to people with poor credit profiles.
Investigate Government Grants
If you cannot find a lender willing to give you a loan, you might consider looking into government grants. Certain government grants offer free money to qualified small businesses. The federal government has numerous grant programs that you might be able to take advantage of. Check out grants.gov for more information on the types of grants available.
Keep in mind that getting a government grant is extremely competitive. Therefore, you should make sure you have a solid business plan in order to have a fighting chance at securing a government grant.
Work On Improving Your Credit
Although it will take time, working on improving your credit score might be the best option for the small business owner. While you might have to put off your business plans over the short term, working on improving your credit will have long term benefits. The most obvious benefit is that you will be eligible for more small business loans at better interest rates as your credit score improves. Although many entrepreneurs are anxious to get their business off the ground, taking some time to improve your credit profile can help you to secure more favorable financing for your business down the road.
Although securing a small business loan is quite difficult if you have bad credit, there are some avenues that might allow you to get funding for your small business. If you have less than perfect credit and are in the market for a small business loan, consult with a financial adviser to determine which method you should pursue.