What dictates my odds of approval?
Lender Type
First of all, the two major types of business lenders are traditional and alternative. Traditional lenders typically follow stringent rules that make the loan approval process more lengthy. These business loans require a fully detailed business plan and at least three years of bank statements, as well as, good business and personal credit. Alternative lenders are less beholden to the rules of the traditional. These lenders accept credit scores on the lower half of the scale, while also not requiring a long business history from potential borrowers. Alternative lenders also tend to provide a wider variety of services for individuals with bad credit.
Personal Credit Score
Your credit score is the first thing a potential lender will look at when trying to ascertain the reliability of a borrower. A low credit score is basically a prerequisite for needing a bad credit business loan.The minimum personal credit score that traditional business lenders typically allow for approval is 650. In contrast, alternative lenders have minimums that vary based on their particular guidelines. The lowest possible score for the vast majority of alternative lenders is 500.
Life of Business
The standard for traditional lenders is drastically different from the ones held by alternative lenders. Most note worthy, traditional lenders will ask for three years worth of tax returns from your business. If you can’t provide three years worth, those types of lenders will make the approval process impossible. In contrast, alternative lenders are a little more lenient when it comes to a business’s age requirement. These types of lenders almost exclusively look for newly developing businesses. When applying for a bad credit business loan this parameter typically is a non-factor.
Increase odds of getting approved for a Bad Credit Business Loan by…
Monitoring your credit
First of all, always keep a high level of transparency when it comes to you and your credit. If your goal is to avoid the need for a bad credit business loan this is the first aspect you should be aware of. Make sure both your personal and business credit scores are completely accurate. For any errors or disputes that you might find contact the credit bureaus.
Surveying your loan options
Your goal is to find the most optimal business loan lender that can satisfy your needs. Above all, this fact is even more crucial when trying to obtain a bad credit business loan. The first thing you’re looking for is a lender that gives you the money you need for the lowest price on the market. Making sure that the repayment terms work for your specific situation is crucial.
Formulate a business plan
Not only is writing a business plan immensely helpful for growing your business, but it’s also required by many loan lenders. In many cases, poor credit scores are directly correlated to bad spending habits. Furthermore, a well thought out business plan would provide you with an in-depth expense plan. When applying for a bad credit business loan you will notice that providing a business plan during the approval process will help solidify your professionalism and preparedness to the lender.
Provide Collateral
Every loan recipient should avoid using personal assets, for instance, your home as collateral. Try to find loans that allow you to use business assets like equipment as collateral.Using collateral when applying for a loan significantly improves your chances of receiving one. Therefore, if you can’t pay the full amount borrowed the collateral will be the substitution.
Get a cosigner
Finally, one of the most effective ways to get a business loan has revealed itself. The smart thing for someone with bad credit to do is to get somebody with good credit to cosign their loan. In this scenario, a huge relief is taken off the lender but simultaneously an equally as large responsibility is put on the cosigner. In the event you can’t make payments for the loan the cosigner has to cover it. It’s essential to secure a cosigner that is fully aware of your financial history and the responsibility they are taking on.
Bad Credit Business Loan Types
Working Capital Loans
These loans are used to finance the everyday business operations that arise in your company. Some of the expenses that fall under this category are inventory, taxes, wages, among many other day-to-day costs.This type of loan cannot be used to pay for investing or other long-term assets.
Collateralize Loans
One of the few ways to secure a bad credit business loan is through the use of collateral.In this process the lender is given the right to seize ownership of your collateral in order to pay your loan back. Due to this loan process’s unique repayment terms, its best utilized by individuals with bad credit. This is because it doesn’t rely on you having financial assets to cover the loan.
Merchant Cash Advances
This option offers a lump-sum loan in exchange for a percentage of future credit sales and debit card receivables. As a result, there tends to be higher interest rates associated with merchant cash advances.
Short-Term Business Line of Credit
When a short-term business credit line is issued the borrower is given full access to funds on a continual basis. This line of credit is active until the specified approved dollar amount is reached.
Short-Term Loans
With this loan the provider lends out a lump sum of capital for your business’s utilization. The borrower agrees to pay back the fixed amount over a previously determined payment schedule.
7 steps to getting a business loan
1.Collect Documentation
- Article of Incorporation – AOI (LLC, SCorp, CCorp, Inc., LLP, P, Self Prop)
- This is a set of formal documents filed with a government body to legally document the creation of a corporation.
- Tax ID Number – EIN
- Get Tax Return Transcript at IRS.gov
- Bank Statements from past 6 months
- Photo ID ( passport, license, etc.)
- Completed and signed Merchant Funding Application
