Are you a entrepreneur that is looking to obtain a business but having trouble doing so due to poor credit? If so, you are definitely not alone. With the economy in such horrible condition and jobs scarce, many people are in need of a bad credit loan to finance almost anything. One of the first things you will want to do is take a look at your entire financial situation and work on rebuilding your credit rating.
Really, the only way to rebuild bad credit is to establish new credit, and make sure it gets paid off on time. This is always easier said than done, but there are several ways this can be gone about.
- One of the first things you should do when looking to rebuild your credit is to pull your credit report information. It is vital that all of this information is recorded correctly. Due to the Fair Credit Reporting Act, everyone is entitled to a free copy of their report once a year. If any errors are found, make sure and dispute them right away with the company who reported the mistake.
- Once you verify that all of the information on your credit report is accurate, start rebuilding it immediately. You try taking on new debt that you are sure can be paid off or continue paying off debts you have already acquired. The key here is to make sure you can pay you borrow and do not repeat the same mistakes you made in the past.
- Try getting a secured credit card. This way you won’t spend anymore than you put down on it. This is the same for a secured loan. These loans are designed for people with bad credit because it offers collateral in case you default on your payments. Both methods are common ways to build your credit back up. However, since you have already have a poor credit rating you want to make sure you do not take on more debt unless you are 100% sure you have the means to pay it back. Interest rates and fees from secured credit cards and loans will generally be very high, but it’s only to prove that you can make your payments on time. Be aware for credit card and loan scams, especially on the internet.
- For those of you who cannot manage to take on anymore debt you can try credit repair counseling services. While rebuilding your credit score, you’ll be educating yourself on managing your budget better and since your credit score has already taken a hit, you should take the time to sit down and plan for the future. With bad credit nothings cheap anymore, but credit counseling is one of those things where there’s plenty of non-profit help out there. One legitimate agency you may want to consider is the Consumer Credit Counseling Services. http://www.aiccca.org/
What you can do to get a business loan with bad credit:
* If you have your own business and have bad personal credit, try and separate your personal credit score from your business credit score. Apply for a tax ID number for your business, this will keep your personal identity(Social Security number) separate from the business. (Apply for a tax ID number click here)
* To get the business credit score start, start applying small lines of credit to the business
* To expand your business and making it look more attractive to banks and lenders, start by putting short term loans on it. These loans will build equity in your business
* If you’d like to start smaller, have family or friends give you loans and have them report it to the 3 credit bureaus
* If you need to start up, expand your business ext, try searching online for specific banks and lenders that will help you acquire a personal business loan with bad credit, although following the above steps is traditionally easier.
Types of loans you can look around for if trying to secure a business loan with a bank or lender:
Bad Credit Business Loans
Assured loans coming from the Small Business Administration (SBA) are probably one of your best options for getting a business loan from a lender with poor credit. Being a government agency, they assure the bank that they will get the loan paid back in full if the borrower defaults on his or her payments. Some banks are willing to help some people achieve their business loans, but some are not. Your best bet is to do a search online, or through the yellow pages to find the right bank. There are many institutions out there (especially in today’s financial crisis) that are willing to lend money to borrower’s who do not meet the standard credit requirements.
“Story Lenders,” is not a real term, but rather a made up term to represent a bank that is willing to listen to borrower’s situation that has made it difficult for him or her to invest. In rare occasions, some banks are willing to overlook one situation of a borrower such as bad credit, insufficient cash flow with their business, ext as they are convinced by the logic that makes the borrowers business idea sound like a success. A case such as this would have to have very thorough reasoning, and would have to be a very excellent and thought out business plan.
What you need to present to a bank or lender for a business loan
* Improvement on your credit score since negative marks were reported.
* An excellent explanation along finance documents, reports, and any additional data that will help explain how your credit rating dropped. You should also include facts as to why you feel they should give you should have a second chance.
* If your just starting a business, you are going to need a business plan/model that will knock them off their feet. It is crucial you make your business seem as profitable as possible to ensure you can secure to deal.
* Evidence of a business.
Basically, you will go through the normal process of getting a business loan, except now you will need to include an explanation and more financial data.
Basic instructions on how to obtain this type of loan:
* Write a business loan proposal outlining the details of your business model
* Start the proposal with a cover letter. Include business name, business background, the purpose of your business, how much loan money you are requesting, how you wish to repay, how loan will be used in your business.
* Research and choose a lender to propose your pitch to
* Provide your resume, as well as the resumes of any members of your business management team
*Include financial statements, including most recent tax forms, from anyone who owns more than 20% of the company
*Provide a statement showing proof of collateral, and how it will be transferred to the lender if the loan is defaulted on
* You want to try and look around for the best interest rates and fees, but with bad credit most lenders are going to offer higher interest rates than normal, so try not to be too picky when it comes to this.
* If you do decide to take a loan from family and friends, work with them to come up with a repayment plan.
* Although the internet is a good source to find information, be weary when searching for lenders on the web because some of them may be scams.You may want to first verify the lender through the Better Business Bureau to ensure they are legitimate.
* Check your credit report to make sure there is no mistaken information on your record.
* Even with the SBA guarantee, some banks won’t change their standards when negotiating. Try and work with the right bank, each bank has its own requirements of what your FICO Score must be.
Although some people may be able to achieve a business loan in this situation, the SBA reminds everyone that bad credit can possibly lead to denial:
* As noted, a clean credit record is crucial in both business and personal finances. Anything else sends the bank warning signals about your likeliness of repaying the loan in a timely fashion – or at all.
* High debt-to-equity ratio. A typical ratio is three-to-one. Banks also look at other standard ratios for credit worthiness. In special circumstances, businesses that do not meet the usual standards may still be considered.
* Insufficient collateral. This is common for startup businesses that lack collateral or significant assets to pay back the loan if the company should experience hard times.