Not having enough funds to grow your business is bad enough. But having a bad credit score can spell doom for any persistent and hard-working small business owner.
Fortunately, you don’t have to let go of your dreams. There are lenders willing to provide the funds even when you have bad credit.
Think smart, be creative and have enough conviction in your abilities to convince your lenders to give you the capital you need.
Run through the list below, before approaching your loan provider.
- Make a good plan Ensure that you have a solid business plan in place before you try heading out (yes, even with bad credit history) to ask for a loan. This way, any prospective lender will have faith in your ability to pay them back.
At the same time, work towards increasing your credibility. Avoid any factors that will run down your credit score further like late payments, credit usage etc. Remember, bad credit can be fixed!
- Show you’re making money Loans for businesses are based on your ability to pay back and on calculations of your cash flow. The business plan should not look like an unrealistic goal. True, your proposal should be earnest, but the idea is to show that you are actually generating revenue. If your business is in the red, no lender will buy your story. Be ready to show projected revenue based on solid facts and research.
- Look beyond traditional banks Banks inspect credit histories before lending money. If you have a bad credit history, you will need to look beyond traditional sources of funds. Alternative lenders have a quick and easy process to approve money; and they transfer it to your account in a matter of hours or days. This is a private and comfortable process, which can be done from home – unlike a traditional bank, you don’t need to deal with anyone face to face. But, before you apply, understand how much you need… and most importantly, how much you can afford to repay.
- Speak to friends and family Reach out to your family and friends. A friend in need is, after all, a friend indeed! But you must candidly explain to them that your credit score is not up to the mark. The catch here is that your ally may want to be a part of the venture, so you should plan to generate sufficient revenue quickly enough to buy out their stake and de-risk as soon as possible.
- Consider peer to peer (P2P) lending Peer to peer lending websites/platforms ascertain your authenticity and depending on your credit score, fix the interest rate. The rates are fixed either by the lender or the company that facilitates the loan.
Once you have successfully obtained loan for your business, immediately work towards strengthening your credit score. You will need to manage it responsibly over time. Cut costs where you can, pay your bills on time and minimize credit card usage. Always remember, re-building credit may take time but it can be done! You will need patience and discipline but it is always worth it when you know you have a strong, credit-worthy business.