Obtaining a Business Loan When Your Credit Rating is Poor
Written by: Rebecca Game
Poor credit, unfortunately, is a common problem for many women.
Poor credit can happen for a variety of reasons. It can be due
to a divorce, when bills weren't paid on time or at all. It can
be due to a medical disaster, where bills have piled up so high
that paying them has become impossible, and credit scores have
dropped accordingly. It can be due to a job loss or lack of
income and the inability to pay bills.
Whatever the reason, it may also mean that you'll have
difficulty obtaining a business loan. However, it doesn't mean
that obtaining a loan for your business is impossible or
completely out of reach. A bad credit loan may be the key to
pulling yourself out of financial problems and getting back on
track in order to focus on your business needs.
There are many programs and lenders that specialize in bad
credit loans. Because someone with poor credit is viewed as a
high risk to lenders, business loans for these individuals are
virtually impossible to obtain. However, by becoming creative
and resourceful, obtaining a bad credit loan for business
purposes is definitely possible.
- Refinance your home for cash out, or consider a home equity
loan. Most commonly, and probably most easily obtained, a bad
credit loan for business purposes can be approved for someone
with credit that's not ideal if they are property owners.
According to Targetwoman.com, approximately 20 percent of all
adults are not able to get a conventional mortgage due to their
poor credit rating.
If you're one of these individuals, you're not alone. Don't feel
completely embarrassed about it, but rather, be aware of it, and
search for loan sources that specialize in bad credit loans. Use
your home ownership status to your advantage. You'll pay a
higher interest rate, but by refinancing your home and getting
back on track, you'll have the opportunity to repair your credit
by making your payments on time, thus rebuilding your credit and
allowing yourself the opportunity to refinance again down the
road at a lower interest rate.
- Apply for a collateral loan. Bad credit loans normally require
some type of collateral, reassuring the lender that in the event
that the loan is not repaid, they won't lose all of the money
they loaned. Collateral also puts stress on you to pay your loan
payments on time, or risk losing the item(s) that you used for
collateral. Signature loans are virtually impossible in which to
be approved if your credit is poor. However, a bad credit loan
can be obtained by using items for collateral, such as
snowmobiles, ATVs, boats, cars, trucks, motorcycles, artwork, or
other appraisable items or items in which a fair market value
can be given.
Obviously, because the value of these items is not as great as
for a home, the loan value will be less. However, a small loan
can help get your business ideas off the ground, and will allow
you the opportunity to rebuild your credit so that future loans
will be more easily obtained. As with mortgages, though, search
for a lender specializing in bad credit loans.
- Ask a friend or relative to cosign on a loan. If your credit
is poor and you don't have collateral and you don't own a home,
options are not as widely available for bad credit loans.
However, if you have a friend or relative that trusts you to
repay the loan, another option is to consider asking that person
to cosign the loan for you. By cosigning, that person is
ensuring the lender that if you are unable to pay the loan
yourself, the other person will take over the payments for you.
While this offers the lender stability and more of a guarantee
that the loan will indeed be repaid in the event that you're not
able to keep up the payments, approach this option cautiously.
This type of bad credit loan will not work for everyone. In the
event that you do not repay the loan, it can ruin a friendship
or a relationship with the relative who cosigned on the bad
- Seek a business investor. A business investor can often be a
good way to bring money into a business as a type of or
alternative to a bad credit loan. The money can be brought into
the business as a bad credit loan, to be repaid in a given
amount of time, or it can allow the investor to obtain partial
ownership of the business. Normally, investors are looking to
invest large sums into the business to obtain a high return.
Developing a business proposal for an investor is usually
necessary, but the rewards can be great in certain situations.
As with any type of loan, do your homework before applying for a
bad credit loan. Consider all options that are available to you,
and choose the option that best suits your situation and your
About the author:
Rebecca Game is the founder of Digital Women ®, an online
community for women in business. A 30 year entrepreneur and
dedicated to helping other women obtainbusiness loans. Visit her
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