How to Get Business Loans with Bad Credit
How to Get Business Loans With Bad Credit
It is a fact that traditional financing requirements have made it almost impossible to acquire a business loan from a bank. Many experts suggest that you are likely to require a credit score close to 800 if you have any chance at receiving financing. With such strict requirements most business owners, even those with exceptional credit, will likely have to apply for a bad credit business loan through an alternative lender.
This type of business funding is unsecured and structured for individual business owners with less than perfect credit. However, there are some requirements that must be met in order to be eligible for a business loan with bad credit. The following guide will help you prepare your application to receive the most money at the best rates.
Alternative business lenders cannot structure bad credit financing based on your credit history so they use your current business financials as a way to gauge your eligibility. The larger and more consistent your monthly gross sales and banking data are the higher the amount your business loan will be and the better your rates and terms will be. And because alternative lenders only look at revenue and not profit and loss, there are many ways you can be creative to improve the appearance of your business financials.
Improving Business Financials
Improving your business financials is not as complicated as it sounds. It is simply working with what you have and presenting it in a better light. For instance, considering that your gross monthly revenues over the last few months are paramount to the approval process you are going to want to make them as robust as they can possibly be. One trick to achieving this goal involves gathering all of your outstanding invoices and incentivize early account settlement. If your customers pay their debt in full instead of paying in installments over time, your gross monthly revenue will increase even though you are working with the same customer base and sales.
Another possible option is to offer discounts on your existing merchandise. Even though you may lose the discounted rate on your profit margins, it will increase your overall revenues. Implement the discounts and build more sales for a few months before you apply. This will give lenders the idea that your revenues are increasing and once you are funded you can return to your normal business model. By implementing these strategies you are likely going to receive a larger business loan at a better rate which will reduce the overall cost of borrowing and help offset the discounts passed on to customers.
There is another great way to improve your financials and you do not have to lose one dollar to achieve this type of improvement. Have as many transactions as possible go through your business bank account. Many business owners receive off-the-book transactions and they do not process the money through their bank account. Even the smallest transactions can have a significant impact on the gross number so be vigilant with submitting all incoming revenue through your bank account.
Your Business Bank Account Will Also Be Checked for Consistency
Alternative lenders rely on your business bank account to further understand the financial strength of your business. Improving your cash flow numbers is not only about revenue, but it also involves maintaining positive balances and not receiving NSF’s (non-sufficient funds). A business that takes out more than it deposits is not likely to receive funding. Also, a business owner that can’t manage their account effectively will also be more likely to default.
It is critical that your business bank account maintains consistent daily and monthly balances. Take every step necessary to keep as much money in your account as possible even if that means leaving petty cash and other savings and expense money in your account. Only draw on these accounts when it is absolutely necessary. By taking this step you will also remove the possibility of receiving any NSF’s. Following these tips will further improve the appearance of your business financials and ultimately make you an attractive borrower.
Although alternative lenders provide business loans for people with bad credit there are steps that you can take to increase the amount you are eligible for and at the same time reduce the rates you will pay. By improving both the appearance of your business financials and the health of your business bank account you give yourself the opportunity to receive a larger business loan at a better rate.