News Flash: Bad Credit and Business Loans Are Partnering!
Joining bad credit and business loans may sound like mixing oil and water. However, a good credit score is not the only way to secure a business loan.
Did you know that many business owners qualify for business loans without perfect credit? Let me show you how.
Your Questions:
- Can I have bad credit and still qualify for a business loan with a very low interest rate?
- Can I qualify for business loans based solely on the income the company is bringing in?
- If I have established business credit will lenders still check my personal credit report?
Real Answers:
Credit = Trust
When you understand what credit really means the answers to these questions become simple. The underlying definition of credit lies in one word – trust.
By checking your credit, lenders find the answer to an age old question: “Can I trust you? Can I trust you to live up to your promise to pay me back? Is your word, your signature, your bond?”
With that definition in mind you can see how your personal credit score is not the only indicator of trust. There are other things a lender could look at to determine if they can trust you to pay them back.
For example, they could look at
- your business credit,
- your banking relationships or
- your ability to generate consistent income.
When you understand how to use these and other alternatives, bad credit and business loans become partners.
In fact the main reason family and friends are often used as an alternative to business financing is because they already know, like and trust you. Now let’s take a look at those questions again.
Alternatives to a Perfect Score
Can I have bad credit and still qualify for a business loan with a very low interest rate?
Yes! Seek business loans that determine your trustworthiness in other ways. You will need to build something in order for them to trust you.
You could build business credit.
Building your business credit could reasonably take about six months. You can get unsecured business loans from $1,000 - $50,000 or more by means of it.
A common perk to this type of financing is that the loan does not show up on your personal credit report!
You could build merchant account credit card sales.
Because the loan is repaid directly from the future credit card sales your personal credit score is of little concern!
You could build account receivables.
If your business is structured to receive payments from the government or other businesses with good credit ratings, you could offer these like a form of collateral through a financial product know as factoring.
How so?
Say you supply wholesale ice cream to a company like Walgreens. However, Walgreens is taking their time paying you. Maybe even taking 45 to 90 days before you get paid on your invoices.
In a situation like that, because Walgreens has an AAA+ business credit score, you can get an advance on your invoices to Walgreens and other companies.
You could build your personal credit.
You may have noticed that the previous alternatives will likely take some time to build. If you intend to do any of these, also consider building your personal credit right along with it.Doing so makes the joining of bad credit and business loans a 1 - 2 punch that even the banks can't turn down!
A short six months could be the difference between a 560 and a 660 credit score! That’s what happened to me during my personal bout with poor credit. I will share more about what I did to build my personal credit score on this website in the near future.
You could build equity.
For example, let’s say you have a piece of property such as a home, multi-unit apartment building, or office complex. There are lenders, commonly called hard money lenders that will provide short term financing based on the equity in the property. The equity must be significant because these loans offer no more than 40-65% loan to value.
In this scenario the interest rates will be steep. Hard money interest rates can go as high as 18% or more. Even still bad credit and business loans can work together to get you a competitive rate. How so?
With the right property and corresponding good income hard money mortgages can be obtained with interest rates as low as 9%!
What if you don’t have any time to build?
You have bad credit and business loans right now are what you need. In your case, bad credit and business loans can still partner up. There are
- bad credit signature loans,
- bad credit cash loans and
- bad credit unsecured credit cards available.
This website will soon provide more information about these types of loans.
Underwriting Considerations
Can I qualify for business loans based solely on the income the company is bringing in?
Yes! Earlier we talked about securing a business loan based on credit card sales alone. Another way would be to build account receivables. Here is another example.
Think of a physician group. Often, there is a long delay between when they provide their service and the time they get paid. The red tape of dealing with insurance companies only makes a bad situation worse.
Thankfully, bad credit and business loans can partner here as well. There are lenders that lend to practically any profession where account receivables are accumulated. Since these loans can be set up to be paid directly from the payer to the lender personal credit becomes a non-issue!
If I have established business credit will lenders still check my personal credit report?
Yes. Often they do. However, they will likely not make it a weighty factor when underwriting your loan. In other words, even if you have bad personal credit your established business credit can get you money in the bank!
In conclusion, business loans and bad credit can go together like a hand and glove when you understand how to use alternatives to finance your business.
Do you have questions about bad credit and business loans that you would like to get answered on this website? Feel free to express yourself on the Business Loan Express Contact Us page.
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