Almost all banks or online loan companies that give loans require you to have a good credit score for you to be qualified to be given a loan. This is because they always assume that there is a higher risk in giving out loans to people that have a low credit score.
If you have bad credit, it means that you have a history of late debt repayment or currently owe other loan institutions. However, despite all of these, you can still get business loans with bad credit. It is actually difficult, and some may require collateral or an “assurance” that you will return the loaned amount when it is due.
In order to get a business loan with bad credit, you must be able to convince the lender that you actually need the money and can pay it back when it is due. First, you need to understand how your credit score is determined.
What Is A Credit Score?
If you applied for a loan from loan institutions, the first step is determining the risk of lending you the money. If the risk is lower than their maximum risk limit, you can have the loan. The risk is determined using your credit and monthly earnings.
They need to check if you have pending debts or a record of late debt repayment and if you earn enough to repay the loan by the time it is due for repayment.
Your credit score is what determines how much loan you can get from a loan institution and how long you can be allowed to pay back. Some companies may refuse to give you a loan at all, especially if you were reported to the credit bureau for not repaying loan.
Using your BVN, the loan institutions contact your bank to get information on your credit score. If your credit is good, you can get loans from almost all loan companies.
How to Get a Business Loan with Bad Credit
To get a business loan with bad credit, here are the steps you can follow:
- Get a list of prospective lenders.
- Identify clear reasons why you need the business loan.
- Check for the requirements and your eligibility status.
- Get the documents required for application.
- Draft a business plan.
- Submit an application.
- Go to a loan shark.
1. Get A List Of Prospective Lenders
Start by gathering a list of prospective money lenders who are known for considering people with low credit. You can do this by checking the minimum credit required to get a loan from the loan institutions you know.
If your credit is really very low that there is no loan institution willing to give you a loan, keep reading this article to know how you can get a business loan with such low credit.
One of such lenders are online app lenders, where you do not have to meet the person lending you the money or representatives of the loan institutions. Unlike banks, online loan companies can afford to give loans with higher risks.
To do that in a bank, you will need the help of valuable collateral and referees who will vouch for your sincerity. Either way, you need to get a list with at least five lenders who may loan you money.
2. Identify Clear Reasons Why You Need The Business Loan
The goal is to convince the lender that you really need the business loan and you have the ability to refund the amount when it is due.
Understand that it is very difficult to get any type of loan with bad credit, but a business loan may be easier. This is because the business can generate enough income to repay the loan.
Write down very clear reasons why you should get the loan in a sheet of paper and put yourself in the loan company’s shoes. Are the points really valid?
Anyone who will lend you money will evaluate why you need that money. This is why you must be prepared, because unlike other people, you are in a bad financial situation. You need this if you have no credit profile or you have bad credit.
Is the loan vital to the continuation or growth of the business? Will the business run normally without the loan?
These are some questions you need answers to. You may need to explain how you will increase your business profits using the loan. If you are invited for a short discussion and cannot prove how you will use the loan efficiently, you may not get a loan.
3. Check For The Requirements And Your Eligibility Status
Check for the requirements and see if you are eligible. Most loan companies have the same requirements, but some may have additional requirements which you need to know.
If you have bad credit, the requirements may be even more. Some loan companies require your business to be more than one year old in order to apply, especially if you have bad credit.
So make sure to check for all requirements in order to know if you are eligible. For the loan institutions that you do not meet the requirements, remove them from your list and add new ones that suit you.
4. Get The Documents Required For Application
This is another important part of your application. Do not use fake documents, as it may even lower your credit score or get you prosecuted. Prepare all the documents and get ready for your application.
5. Draft A Business Plan
This could be the most important part of your application, depending on the loan company. You must have a concrete plan on how you intend to use the loan to generate income, such that you can return the loan when it is due without crashing your business again. While writing your business plan, you need to demonstrate how you will return the loan.
Some loan companies may not require a business plan, but if you are going physically for the loan, your business plan may be a good advantage. Be prepared to answer a lot of questions about your business plan; write it yourself.
6. Submit An Application
When you are going for the application, make sure to look confident and responsible. Prepare all the documents and put them in a folder. If you are applying online, remember to check the details properly.
Do not apply to all the loan companies on your list at once. Submit the applications one by one so you do not get multiple loans which are unnecessary.
7. Go To A Loan Shark
This is a last resort for people who are desperately in need of a loan. If you can avoid it, do not borrow money from a loan shark.
Who Is A Loan Shark?
Loan sharks are money lenders that operate completely outside the law. They are not registered nor bound by any law, so you must be really careful when getting loans from them. The contract you sign when borrowing the money is what binds you, and since they operate outside the law, you may be duped.
Read all the terms and conditions because you may sign dubious contracts unknowingly. A loan shark does not care about your credit, so you only need a collateral to get a loan.
Types of Business Loans for Bad Credit
Here are the types of business loans you can get with bad credit:
- Term Loans.
- Invoice Factoring.
- Invoice Financing.
- Equipment Financing.
- Microloans.
- Merchant Cash Advances.
What Is The Easiest Loan To Get With Bad Credit?
The easiest loans to get with bad credit are co-signed loans. In other words, you need to apply for the loan with someone else who has good credit, and possibly a collateral (like a savings account or valuable property).
Conclusion
Getting a business loan, or any type of loan with a bad credit is not impossible but is very difficult. The risk of lending you money is very high, so many loan institutions are hesitant. Follow the steps mentioned in this article to see if you can get a loan.
