Bad Credit Business Loan Tips
Guarantee Getting Approved For a Bad Credit Business Loan
It would be nice to know you are guaranteed to get approved before you even apply for a bad credit business loan, right? One of the biggest problems for small business owners with bad credit in getting their small business up and running, or in just keeping their doors open, is lack of access to funding. Temporary funding problems can hit at any time, and it is important to have a way to get a little extra help when in need.
If you are a business owner with bad credit and you need a small business loan, you do not want to waste time applying only to get denied. To guarantee approval, educate yourself about your credit score and what lenders consider when deciding to work with a borrower.
Defining “Bad Credit”
When lenders talk about having “bad credit,” they are generally referring to a FICO score for businesses or an individual’s personal credit score. A credit score represents how someone handled paying debts in the past, and lenders use it as a gauge of how they will handle debt repayment in the future.
Individuals and businesses that have missed or made late payments on credit cards and loans will likely have lower credit scores. Before even contacting lenders, request a copy of your credit report from one of the major credit bureaus. Learning your score before you approach a lender will tell you if it will be more difficult to get approved, or if you need to work on fixing your score first.
FICO scores can range from as low as 300 to as high as 850, with most Americans hovering around 700. To qualify for most “bad credit” loans, a person must have a FICO score of approximately 500 or higher. Lenders view scores as benchmarks for determining how much risk a potential borrower may present.
Traditional lenders start with your credit score and could deny your application before you get very far if it is below 650. Alternative lenders work with borrowers who have scores as low as 500, but there are other steps you must take to obtain approval from them.
Alternative Lenders’ Lending Criteria
Because they specialize in working with non-traditional borrowers, alternative lenders have developed different underwriting standards than traditional banks. After ten-plus years of lending, they have learned that these criteria better predict that a borrower will repay a loan.
Minimum Monthly Revenues
While alternative lenders will look at your credit score, they weight minimum monthly revenues heavily in their underwriting decision. To them, this indicates that your business produces enough cash to repay your debt. Before you apply, make sure your business can show at least $8,000 a month in revenue.
Shield Funding only requires that you have been in business for two months, but revenues must support repayment ability.
Negative Days in your Account
Going negative in your bank account will negatively impact your chances of getting approved for a bad credit business loan. You cannot have been negative for three days in the last month, either consecutively or spread out over the month to qualify. Before applying, review your bank statements to ensure you meet this requirement.
Alternative lenders also will not fund a negative account, even for one day. If your account goes negative on the day of funding, they will not deposit the funds – plan on having money in your account that day.
If, after examining your bank account records, you realize that you had too many negative days to qualify, wait a month to apply. During that month, work to keep your account current, even if this means waiting a few days to pay vendors.
You Operate a Valid Business
Lenders want the assurance that you operate a valid business from which they can collect any past-due balances. Before you apply, register your business with your state’s Secretary of State or check that prior registrations are still active. Make sure that all other paperwork and licenses are up to date, too, and that you are on time with rent for your business location.
Note that if you are applying for a loan with a larger amount, the lender may ask for additional documents to prove your business can repay it. In addition, other factors may impact your approval odds.
Other Lending Criteria
Depending on the size of the loan you are applying for, or the lender you are working with, other criteria could impact qualifying for a loan.
Industry of Operation
If you operate in high-risk industries, traditional lenders will be reluctant to work with you. Small business owners who run restaurants, known for high failure rates, “sin” industries such as gambling, liquor, or cannabis, and check cashing or bail bond companies often struggle to access capital.
While you cannot change your industry, it’s important to know how it will impact how lenders view your loan application. Even if credit is not an issue, a bank could deny your loan based on your industry. If this applies to your business, do not lose valuable time approaching a lender unlikely to work with you.
If your current debt levels are high, it is less likely it is that a lender will be willing to take the risk of lending more money. Try to pay down some or all of your current debts before applying for financing. The lower your debt service coverage ratio, the more likely you will be approved.
Business collateral can come in a variety of different forms, such as property owned by the business, inventory, and even any outstanding invoices. If you can pledge this collateral to secure a loan, it lowers the lender’s risk. Should you default, they would seize the collateral to recover the balance owed. The more collateral you have to secure a business loan, the better chances you have of getting approved for a collateralized business loan.
If you meet these simple criteria, you can rest assured that you are guaranteed approval if you follow the lender’s application process correctly.
Follow the Application Process
Failing to complete a step correctly can delay a loan application. Before you contact a lender, make sure that you have gathered all the information they will require, and then follow these simple steps.
Step One: Fill out the Application
The first step in getting the capital you need is to fill out the online application form. In it, you create a basic profile that gives the lender a good sense of your company and what you hope to accomplish as a business owner. Answering these questions provides the lender with enough preliminary information to tell if it is a good fit.
After quickly reviewing the details of your application, a financial specialist will get in touch with you regarding the details of the loan terms and the payback options. At this point, a lender can tentatively gauge the likelihood of approval if all of the information on your application checks out.
Step Two: Fill Out the Loan Process Application
Once you have taken the time to speak with a representative, the lender asks you to fill out another quick application and provide them with around four months of business receipts. This part of the process will go smoothly and quickly if you assembled the needed documents before contacting them.
Shield Funding can turn around an underwriting decision in as little as 24 hours if there are no delays in providing documentation.
Step Three: Select a Payback Plan
The last step in the process of getting a bad credit business loan is to select your payback plan. Alternative lenders understand that there are many different ways to pay back a loan, and they work with borrowers to accommodate their cash flow when choosing repayment options. You can select a daily, weekly, bi-weekly, or monthly payment that will be automatically withdrawn from your account.
Loans fund within a period of one to three days, as long as you meet the lender’s criteria. Alternative lenders know that you may have an urgent business need, and they want to see you succeed. There is no mystery to guaranteeing approval for a bad credit business loan if you know what lenders want to see from small business owners.