Having bad credit can be a major setback for a person who needs a loan. Bad credit loans offered in the market often come with high interest rates,shorter repayment periods and sometimes require additional collateral.
Business Loans and Your Personal Credit Score
Before submitting your business loan application, it is recommended that first order a copy of your personal credit report to see where you stand. If you have no business credit history, you need to understand that your credit rating as an individual can be a big factor in getting an approval.
Many start up business owners call us and want to obtain a loan for their new company but don’t understand why we have to use their personal credit as a guideline for approval. Since the new business doesn’t have any credit of its own, we MUST use your personal credit in order to make a decision.
Even if you have established your business and have a paydex, its getting harder and harder to qualify for corp only financing. Banks may offer it, but they will still pull the business owners credit to see how they handle their personal credit. If they find the business owner has bad credit they may either decline the application, or approve it, but at a higher interest rate.
What you can do if you have bad credit and need a business loan
What if you have a low score?
- You can work on improving your credit score and apply at a different time
- You can ask a friend or family member to be a co-signer on the loan so that their good credit will help bolster your bad credit score
- You can offer the lender additional collateral as security
Secured Bad Credit Business Loans
Most bad credit loans will be secured in one way or the other. Whether its equipment, real estate, or even its accounts receivables. Secured business loans are popular because they come with more flexible repayment options and terms. Nevertheless, these loans require the submission of a down payment. Be prepared to give at least 10%-30% down as collateral for the loan.
With regards to the interest rate, bad credit business loans are expected to be more costly than standard loans. But that does not mean you cannot find a reasonable deal. By doing research and comparison, you should be able to find a lender who will give you a reasonably priced loan.
I see a lot of business owners fall for bad credit loan scams. A few things to watch out for:
- You need to make an upfront payment before they will look at your business loan request
- They offer you a rate so low it rivals what a business owner with good to excellent credit will get. When faced with a super low rate for a bad credit loan, read the fine print. You will often find a clause stating they will TRY to get you that rate, but it may go up when its time to actually fund.
- Make sure the rate offered extends for the FULL TERM of the loan. Sometimes when you read the fine print, you will find that it may only be at that rate for a few months.
Irish Taylor is a business loan consultant with Startup Business Loans and has been providing consumers and business owners with startup business financing since 1992. For years she has helped people with credit and loan problems especially pertaining to business start up, SBA loans and Unsecured loans.
This can be a scary thing having to give collateral when signing these papers. Not that I don’t plan on paying but you never know if you will run into a hard time.
Exactly! And because start up business financing is considered high risk. So the banks want some added assurance that the business owner will not just “give up” when the going gets hard.