How To Get A Startup Loan With Bad Credit
Big banks approved 28 percent of the small business loan applications they got in October 2019, which is the highest approval percentage they've had in the post-recession era, according to the most recent Biz2Credit Small Business Lending Index. While this is a record high figure, more than two-thirds of loan applicants are turned away and never get the financing they need. One of the main reasons why many businesses miss out on loans is poor credit histories. It takes just a few mistakes to mess up your credit score, but once you do, it can affect your relationship with financial institutions for the rest of your life. Luckily, there are various ways you can raise the finance you need for your startup, even when you have a poor credit history.
Ask friends or family members for help
Chances are your friends and relatives want you to be successful, and may be in a position to help you achieve your business dreams. They also may not care about your poor credit score since they know and trust you, or they believe that your business idea sounds viable. Taking a loan from a friend or loved one isn't always a good idea as it can damage your relationship, but it can come in handy when it's the only option. If asking for money seems like too much, you can find a friend or family member with a good credit score and ask them to act as a cosigner to the loan. In such an arrangement, the person is guaranteeing the financial institution that they can take over loan payments if you fail to do so.
Take steps to repair your credit
If you are not in a hurry to get financing, focus on raising your credit score before seeking financing options. The first thing you can do is examine your credit report to see your current credit score and determine whether or not there are any discrepancies. If you find any, you'll need to report them to all credit bureaus so that they can take the necessary actions to fix it. Getting a better credit score will also require you to follow healthy financial practices such as paying outstanding balances, adjusting your budget or paying your bills on time. Experts with experience of the circumstances unique to each customer have collated the Best Credit Repair Companies (Updated Reviews for 2019) to make the process easier and faster. After reviewing your credit report, a credit repair company creates a plan to fix any discrepancies and recommends the best actions to improve your credit score.
Provide some collateral
Putting up collateral will improve your chances of getting a loan when you have bad credit. If you fail to pay the loan, the lender can take your collateral as payment. However, you should not use personal assets such as your house as collateral for your business loan. You don't want to end up homeless because your business failed to service your loan. Instead, find a loan that allows you to use business assets like equipment as collateral.
Don't let your poor credit score stop you from starting your business and achieving your dreams. Even if you have bad credit, there are many financing options available for you out there; all you need to do is find them.
In the UK? London accountants, Accounts & Legal, recently shared an interesting article on the new wave of SME lending on their blog.