How to Get a Business Loan with Bad Credit in the US
Lack of funding is one of the primary reasons for business failure, not only in the US but also across the globe. Many lenders will not be willing to lend money to businesses with bad credit scores. Moreover, even the Small Business Administration (SBA) will not guarantee any business with bad credit history for any loan. Nonetheless, a business can still qualify for a loan if you have bad credit. For an entrepreneur, you only need to know your options and viable approaches on how to prepare for application. Nowadays, entrepreneurs in the US can easily acquire capital with very little hassle.
The credit history of entrepreneurs has in the past served as gatekeepers and hurdles in acquiring business funding. Factors that negatively affect borrowers have stepped aside in favor of more flexible and sensible lending criteria through alternative lending. Presently, even bad credit is now surmountable. In fact, alternative lenders are taking into account a wide variety of factors for approval. Banks are looking into factors such as revenue and the debt-to-income (DTI) ratio of a business. Nevertheless, just as with any financing method, there is an approval process that banks follow. Therefore, it is important to know what lenders are looking for greater chances of loan approval. Below are tips to help you get approval for any type of bad credit business loans.
Know what lenders are looking for
For an entrepreneur, it is essential to understand what the average lender is looking for when reviewing loan applications. Bear in mind that every lender has their own and slightly different approval methods. Moreover, some lenders place weight n certain factors more or less than their counterparts. However, there are the basic criteria that all lenders use that one should get aware of before making a loan application. Here are the three most basic factors you should have in mind.
Debt – most lenders will want to see that your debt(s) is under control. It is all right to have debts. However, you should show a good history of on-time payments and a good DTI ratio.
Revenue – lenders want to see that your business revenue is high and growing consistently. They take interest in this because the business revenue is what you will use to pay them back. Therefore, it would be best to present the ability of the business to have increased revenue.
Cash flow – cash flow needs to be high and well managed. Most lenders will want to see that you not only have cash flow, but your usage and control are efficient.
Strive to meet the minimum borrowing requirements
Similar to having different approval criteria, most lenders in the US have their own minimum qualification requirements. Entrepreneurs need to meet the requirements before applying for a loan. Here are most lenders’ basic requirements:
Time in business – most lenders want to see that you have been in business for anywhere more than six months.
Minimum monthly revenue – many lenders require minimum monthly revenue. For most lenders, the minimum monthly revenue should be $10,000 or more.
In good standing – lenders will not give you a loan if you are behind on payments with another lender or have a history of nonpayment.
Get your documents in order
After getting an idea of what lenders look for when reviewing your funding application, gather the necessary documentation for approval. Every application is different and a lender may request a particular document that they will not from another applicant. It would be best to have the following documentation in order, just in case the lender requests it.
Proof of ownership of a business
Personal and business tax returns
Profit and loss statement of the business
Business licenses
A voided check
Property lease agreement
A driver’s license
Bank statements (for specified periods)
A debt schedule
Having these documents in order is an added advantage of speeding up the approval process.
Evaluate your bad-credit business loan options
It is important to review your potential funding methods. Becoming familiar with common loan products will give a better idea of the best fit for your business funding needs. The following are some of the most notable alternative funding options for entrepreneurs with bad credit.
Unsecured business loan – unsecured business loans do not need traditional collateral but interest is often higher. Lenders may give up to $2 million.
A business line of credit –this is similar to a credit card and gives entrepreneurs access to a revolving balance of credit.
Term loan – this is a standard loan, often a lump sum that payable within a specified period.
Split funding/merchant cash advance – this is an excellent financing option for businesses with a regular flow of credit card sales. It takes a percentage of the business daily sales to pay back the loan. That makes paying off the loan super convenient.
Every small business in the US needs access to credit for spurring and maintaining growth. Bad credit should not hold you back from obtaining the capital your business needs. Get in touch with us for more tips on how to get a business loan with bad credit.
