One of the first things banks look at when you apply for a small business loan is your credit score. As a small business owner, you may not have a great credit score. In fact, if your score is under 600, your chances of getting a loan significantly decrease. But having bad credit doesn't mean you can't get a small business loan. There are a few options to help you get a loan for your small business even with bad or low credit.
Talk To Your Bank
First things first, talk with your bank. They can tell you how bad your credit really is. They will be able to see what specifically has caused your credit to go bad and will have ideas on how to improve your credit. The bank can also look at your specific circumstances and give you some advice on how to get a loan for your small business.
Improve Your Credit Score
The best thing you can do for your self is start improving your credit score right away. Unfortunately, it takes a few years to get your score up, so waiting to get a loan while your score improves may not be an option. Even if you cannot wait for your score to improve, start following these tips for improving your credit score:
- Pay all your bills on time
- Close credit cards or credit lines you don't use
- Pay off current credit cards and credit lines
- Only open new credit cards and lines of credit you absolutely need
- See our article on Credit Scores for more information about credit scores.
Find A Co-Signer
Someone with good credit could co-sign for you so your small business can get a loan. The loan will be in your name and you will be responsible for making the payments, and the co-signer will only be liable for the loan if you stop making payments or if you start falling behind in your payments.
Separate Business And Personal Finances
It is recommended that when you open a business, you want to be sure to separate your business finances from personal finances if at all possible. This includes using your business EIN (see our article on EIN at http://www.wbsonline.com/resources/federal-employer-identification-numbers/) and establishing a line of credit or opening a credit card through your business. Banks will still look at your personal credit if you apply for a loan through your business, but often times good business credit can help make up for bad personal credit.
Sometimes certain assets can help you secure a small business loan. If you have large assets, a bank may approve you for a loan equal to the worth of your assets. Make a list of your business and/or personal assets and their values for the bank and talk with them about using the assets as collateral for your loan.
It is important to watch out for companies promising loans to people with bad credit, when you begin your search. There are many companies claiming to approve you in minutes for a loan no matter what your credit score is. These companies usually have very high interest rates and/or loads of expensive hidden fees and some may even turn out to be scams. Read all the fine print and talk with a financial advisor before applying for one of these loans and providing them with sensitive personal information. And it's safe to say if it sounds too good to be true, it probably is!