How to Get Business Loans with Bad Credit

Most entrepreneurs think that because they have bad credit there is no chance of them getting a loan. But in reality, there are actually many different financing options that business owners have in which they can qualify, even with severe credit challenges. As you already know, banks REQUIRE good credit to get approved for business financing. But still, most people only go to their bank when they need money, because it’s the only place they know to go to. But the most common business bank loan, SBA loans, only account for 1.1% of all business loans (Department of Revenue 2013).The reality is that the big banks are NOT the suppliers of most business loans. And even though they require good credit to qualify, many sources don’t. The big banks are very conservative, as most know. Due to this they commonly won’t lend to businesses in which the business owner has challenged credit. But businesses can succeed even if the owner doesn’t have perfect credit. And many business loans make really good sense and have risk low enough based on other factors, even if the owner doesn’t have good credit.So what types of funding can and can’t you get with bad credit? Before you know where to go to get money if you have credit problems, you first should know where NOT to go. These sources might be appealing based on their offers and promotions, but they will not typically lend money to you if you have challenged personal credit. SBA loans, conventional bank financing, private investor money and unsecured financing, all have stringent credit requirements.

Where NOT to Get Financing with Bad Credit…

SBA and other bank conventional loans are tough to qualify for because the lender and SBA will evaluate ALL aspects of the business and the business owner for approval. To get approved all aspects of the business and business owner’s personal finances must be near PERFECT. There is no question that SBA loans are tough to qualify for. This is why according to the Small Business Lending Index, over 89% of business applications are denied by the big banks. Many people think that when they have bad credit, a private investor is the best answer. But in reality investors typically want an average or better credit of 650 scores or higher in most cases.They will also want solid financials for at least two years. This means they’ll want to see tax returns showing large net profits that are increasing over time. Think of private money as being for SBA and conventional bank loans that just miss the mark. “Unsecured” means no collateral is required for approval. No collateral GREATLY increases a lender’s risk. No collateral requirements usually mean it’s the quality of credit that determines qualification. Any type of financing that has no collateral requirements, or no cash flow requirements, WILL require good credit to qualify

Revenue-based financing, collateral-based financing, equity financing, crowdfunding, business credit, and unsecured financing using a credit partner/personal guarantor, are all great funding options for any entrepreneur with personal credit issues. The truth is, there is a LOT of capital out there that business owners can obtain, even with personal credit issues. And most of it isn’t available through big banks. And the great news is that you can qualify for this massive amount of available financing based on your business strengths, as long as your business has even one strength. The big banks require your ENTIRE business and you to be near perfect to get money. But as you’re about to discover, there are a lot of other sources who will lend you money, even lots of money, based just on one strength. So as long as you have strength to offset your weakness of having bad credit, you can be approved. This is often called compensating factors

In my next post, I will explain each option so you can think of what will work best for you.