Obtaining a Poor Credit Business Loan
Written by: Rebecca Game
Business owners with poor credit ratings may find it difficult
to obtain a loan for business purposes, such as expansion or to
invest in a new product. Because lenders focus primarily on
personal credit scores for business loans, you need to focus
your efforts on going to the right lender for a poor credit
Poor credit business loans are available to business owners who
would not otherwise qualify for a conventional business loan.
Before applying for a lender, take a few important steps to
increase your chances of getting a poor credit business loan.
1. Write a sound business plan. Having a sound business plan is
your biggest asset in obtaining a poor credit business loan. The
plan should be completed and should represent your business in
detail. Pay the closest attention to your business' summary,
which is stated at the beginning of the business plan. The
summary is generally one to three pages in length, and details
your business' management experience, marketing efforts and
goals, business goals, and other information about the business.
If the lender likes what they see in this summary, they'll read
2. Rent, rather than purchase, business space. If you're
applying for a poor credit business loan, look for attractive
business rental property that fits easily into your business'
budget. Lenders favor businesses that rent or plan to rent
business space rather than purchase a building, especially for
businesses that are in the early stages of development, and will
often approve poor credit business loans provided space is
rented rather than purchased. This is due to the fact that
lenders prefer to see a business owner investing in assets that
generate income for the business, such as inventory and
equipment. Lenders also frown on expensive renovation costs to
rental space if the business is a young or start-up business.
3. Review your credit reports. Checking your credit reports from
Experian, Equifax, and Transunion is an important start to the
application process for a poor credit business loan. Your credit
reports can cue you in on what the lender will see as soon as
you apply for a poor credit business loan. When you obtain
copies of your credit reports, review all information, including
your name, address, phone number, and social security number to
make sure that they're all correct. Additionally, check your
listing of creditors. If there are listings that you don't
recognize, report them to the credit bureau.
Additionally, if there are listings that were turned over to a
spouse after a divorce, for example, report those as well. The
credit bureaus will contact the creditors with these disputes.
Creditors are given a 30 day period to respond and verify that
the debt is true, or if they are indeed errors, they are
required to remove the listings from your reports. If no
response is received after you file your dispute, the credit
bureau is required by law to remove those listings from your
reports. Demand that the credit bureau correct these mistakes
If your credit report shows legitimate late payments or
bankruptcies, include a letter with your poor credit business
loan application, explaining the circumstances of these marks
against you, and how the situation has changed for you. This can
greatly reduce the impact of these negative listings. Be honest
with the lender! Trying to conceal your past credit problems is
the fastest way to get your poor credit business loan
4. Consider a small lender. Larger banks aren't necessarily the
best place to apply for a poor credit business loan, and in
fact, can sometimes be the worst place to apply. Smaller banks
and credit unions are often more inclined to finance businesses
in their community, even those applying for a poor credit
business loan, and their loan officers are more likely to give
you individual attention and listen while you state your case.
Each inquiry into your credit report generally reduces your
credit scores by five points, so choose your lender carefully
before applying for a poor credit business loan. Ask the lender
to review your situation prior to pulling a credit report. If
they feel that the proposal shows great potential, while being
honest with them regarding your poor credit, and the lender
feels that the loan could be approved, you've reached a safe
point to move forward and allow them to request your credit
Poor credit business loans can sometimes be difficult to
obtain, so be resourceful on where you get your loan.
A. Consider a home equity loan. For example, home equity loans
can be used for business purposes. However, keep in mind that if
the business fails, you may also be at risk of losing your home
if payments are not made.
B. Consider working with a specialty lender. Some lenders
specialize in poor credit business loans for high-risk
entrepreneurs. These loans usually have high interest rates, but
can sometimes offer a provision for lowering the rate when the
business shows positive cash flow and the borrower demonstrates
the ability to pay the debt.
C. Approach the Small Business Administration. The Small
Business Administration (SBA) has a wide variety of loan
programs to assist business owners and potential business
owners. The SBA does not provide loans, but rather, guarantees a
loan, reducing the lender's risk of loaning you the money for
the poor credit business loan. The SBA also maintains a list of
business-friendly banks. For more information, contact your
local SBA office, or visit sba.gov.
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 find small business loans.
Visit her site for Women
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