Whether your business is in the start up phase, is establishing itself in the market, or is an already established business with just a need of short-term funding, you are sure to always need funds. Due to improper debt finance planning or just circumstances, many small business owners often go through a phase of bad credit. Getting business loan for one with bad credit is difficult but not impossible.
Bad Credit Business Loans
If you have credit score below 650 and have tried applying for business loans at various traditional financial institutions, you already know how difficult the process and how slight your chances of approval are. More than 80% of loans get rejected by financial institutions and banks, as they club the personal credit scores of the individual with other scores to gauge the personal repayment capability. Yet, there are many different institutions that are willing to take the risk. To learn more about them, let us first start with a few steps that need to be taken by the person, before applying for a loan.
What should one do?
If you wish to apply for a small loan, here are some things that you need to do well in advance.
- Detach you social security number based credit (personal) from your EIN (Employer Identification Number) based credit (business). In layman’s words, what you need to do to separate your bad personal credit from your business credit, is to start a corporation or LLC.
- Use your acquired EIN to establish a business credit profile, which tends to be separate and thus unaffected by your personal credit history. This way, it is easier to build a strong business credit profile, despite having a weak personal profile that requires urgent repairing.
- Make sure that you prepare totally independent financial statements for your business, that do not include any of your personal finances.
If you have sorted out these initial steps, you are ready to apply for a loan. Below are some of the options that you can try out while applying for such loans.
Small Business Administration Loans
As mentioned earlier, if you have a bad personal credit report, you can improve it by starting a small business of your own. Once that is done, the doors of SBA (Small Business Administration) open up for you. If you fit into the criteria to be eligible for this loan, that is, your revenue is relatively small, the business size is small, etc., SBA loans offer a great deal to people with bad credit. These programs come with comfortable terms and conditions like, longer maturity, lower interest rates and installments, and lesser down payment, for they are either Government guaranteed or are secured by one of the numerous national partners.
Substitute Loans with Trade Credit
If the amount required by you is relatively small or is only required for smaller durations, you can substitute your plan for applying for a loan with a relatively easier option of trade credit. Trade credit can be used for almost everything that a business loan can be used for, including making purchases of raw materials and assets. The best thing about trade credits is that, they are easier to obtain being less stringent in their requirements and usually do not require a personal credit check. Sometimes trade credit can even be obtained without giving any guarantees and its only drawback is that the process is not very simple and may require external help.
Business Cash Advance Alternative
Business cash advances are better and easier for small business financing. Not only do they come with flexible repayment options that suit your convenience, but they also do not make a huge mountain of a problem out of your ‘bad credit’ molehill. The bonus is the fact that, they are completely unsecured and do not require any guarantee or collateral. They are processed quickly and the applicant generally gets his money in about 72 hours.
Small Business Financing with Retirement Funds
The Express Funding Group has come up with good options. Its 401(k) rollover strategy uses the capital from your IRA or other retirement accounts to finance small businesses. The advantage of this type of funding is that, it avoids all early distribution taxes and penalties, while still getting significant tax benefits. It’s a good option to finance your funding needs without affecting your personal credit scores and save on other loan and interest costs.