Let’s talk about business loans a bit. That’s why you’re here, right? If you’re looking to expand as a business owner, business loans can be of great help.
Business loans for bad credit come in all sizes and shapes—from term loans and lines of credit to merchant cash advances and invoice factoring arrangements. But you need to be clear about which one you want to apply for.
The question is: What do you do when a bad personal credit stares at you? How do you get your business loan approved despite your poor personal FICO score? This article teaches you, step by step, everything you must do to get your business loan for bad credit approved.
To do so:
- Have a legit business
- Determine why you need a business loan
- Check your personal credit score
- Seek lenders that provide business loans for poor personal credit
- Prequalify if possible
- Find the right business loan for you
- Gather the relevant paperwork
- Find a cosigner if needed
1. Have a Legit Business
- Decide on a business structure: This is an important choice to make. It formalizes your business and lays the foundation for other business decisions you’ll make. Decide whether you want to run a limited liability company(LLC), a sole proprietorship, a partnership or a corporation (S or C).
- Have a business address: A business address helps you protect your privacy. But if you decide to run your business online, you can opt for a post office box.
- Register your business name: For your business to be considered legit, make sure you register your business name with local and state officials. For further details on how to register your business name, check out the Small Business Administration’s resource on the subject.
- Get a business identification number: Your business also needs an identification number, just as you have an SSN. Sign up for an Employer Identification Number (EIN) from the IRS
2. Determine Why You Need Business Loan
Before you apply for a big business loan, determine why you need the loan. As part of the underwriting process, your lender looks at your stated loan purpose and how the loan will affect your business and increase its bottom line.
Three important questions to consider while evaluating your funding needs:
- Can your business survive without funding?
- Can you raise the funds you need without incurring debts and interest—either through crowdfunding or stock offering?
- Can these funds increase the productivity of your business, thereby increasing sales?
Determining why you need a business loan helps you decide what loan options suit you.
3. Check Your Personal Credit Score
To get a large business loan with bad personal credit, know where you stand with your personal credit score as it determines your creditworthiness—that is, your ability to repay the business loan you seek.
A bad credit score does affect your approval odds. So you may have difficulty convincing your lender about your ability to repay.
Therefore, before you apply for a loan, know your credit score as it helps you wisely choose loan options and terms. Evaluate your credit score by reviewing your credit report at least once every year.
To do this, request a copy of your report from either of these three bureaus—Equifax, Experian or TransUnion.
4. Seek Lenders That Provide Business Loans for Poor Personal Credit
Search for lenders that provide business loans for poor personal credit. Not every lender is willing to grant your request for a business loan with poor personal credit. Before you approach a lender for a business loan, be sure their loan terms are suitable for you. Read reviews and speak with a customer representative if need be. Be sure your lender is willing to assist you on your journey to business success.
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5. Prequalify If Possible
Do not mistake prequalification for preapproval. Prequalification involves your lender going through your financials to determine whether you meet the criteria to qualify for their loans.
Prequalification does not involve the exchange of documents. It’s often done verbally. Once you find a lender whose requirements you meet, speak with him or her, letting your lender know the loan amount you seek and your revenue (monthly and annually).
6. Find the Right Business Loan For You
As a business owner seeking large business loans with poor credit, keep in mind there are several financing options you can leverage on. Again, business loans for poor credit come in all sizes and shapes—from term loans and lines of credit to merchant cash advances and invoice factoring arrangements. Before applying, be clear about the loan you want.
Also, ensure you meet your lenders’ loan eligibility criteria and repayment terms to avoid getting a loan you cannot repay.
7. Gather the Relevant Paperwork
To get a big business loan with bad personal credit, gather the relevant paperwork. Your lender requires certain documents to prove your identity and ability to repay the loan. To apply for a large business loan with bad personal credit, provide:
- Personal and business tax returns dating back to at least two years
- Financial records for the last three years, at least
- As well-crafted business plan that shows your ability to repay the loan with interest
Your business plan should include a description of your products and services, market analysis, marketing strategies and revenue projection, among other things.
Once you gather all the documents needed for a big business loan, apply for real—meaning collect the relevant paperwork, submit your business plan application and fill out your lender’s application form.
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8. Find a Cosigner if Needed
To get a large business loan with poor personal credit, find a cosigner if possible. A cosigner is someone—preferably a family member—with higher personal credit than you, and who is willing to cosign your loan. Your cosigner will not repay your loan, as it’s definitely yours from the get-go. However, if you fail to meet up with repayment, then your cosigner can help.
Conclusion
To get a big business loan with bad personal credit, have a legit business, determine why you need the business loan, and check your personal credit score to know your creditworthiness status. Seek lenders that provide business loans for poor personal credit, seek prequalification (if possible), and find the right business loan for you.
Once you choose the right business loan for you, gather the relevant paperwork, find a cosigner if needed, submit your business loan to your lender and fill out an application form your lender will give you. Now you know what to do to get your desired business loan.
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