5 tips to get business financing with bad credit
People with bad credit are considered high risk lenders and not many banks or lenders want to take a chance on loaning people money with bad credit, regardless of if it's for a business. Most lenders who give business loans will also look at your personal credit score when determining if they are going to lend you credit. The good news is you can fiancé a business with bad credit, but the process is a bit more difficult. Here are some tips to help you get business financing with bad credit.
First you will need to separate your personal credit from your business credit. If your personal credit is bad then you do not want to have it tied into your business credit because you will never be able to get financing. To separate the two you are going to have to obtain a Tax ID number so that you can being building your business credit score. You will want to start off small and build your credit up slowly. Once you have a credit history for your business you can obtain better financing with lenders and secure larger loans, but do not over extend yourself.
While you are building your business's credit you should also focus on repairing your personal credit. While you might still have some bad items many lenders will look at your recent payment history along with your credit score to determine if you are eligible for a loan. So you will want to make sure that everything is paid off and that all of your payments are on time, this can increase your credit score as well as get you approved for a small loan.
Check your personal credit reports for any errors. By taking advantage of the free annual credit report you can look at your personal credit score once a year to make sure that everything is being reportedly accurately. Sometimes errors are made and that can affect our credit scores. If you disagree with anything on your credit reports be sure that you appeal to the credit reporting agency who will then contact the creditor to find out if it is accurate or not. Also if you have supporting documentation to support the errors such as a letter that it was paid off you can give the credit companies a copy of that letter.
Consider putting down some assets as collateral. Most lenders do not want to take a risk when they are lending money so if you have a title to a car that you can use for collateral you might be able to get some financing. But this can also limit how much money you can borrow. Generally lenders are only going to loan you as much money as the assets is worth. This way if you default on the loan they can take your asset and sell it to get their money back.
Consider using some non-traditional ways to get financing. Non-traditional ways give you more options for obtaining financing then going to a traditional lender. Some ways you might consider is selling assets to make some money or even consider using trade credit to obtain what your business needs.
Just keep in mind that trying to finance your business with bad credit is going to be a costly process. You are most likely going to be faced with high interest rates. You might also be forced to use asset based lending, which might involve putting your house up for collateral, depending on how much money you need. So before you start your business you might want to think about cleaning up your personal credit so you have a better chance of obtaining decent business loans.