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A bad credit history indeed can reduce the chances of getting a loan. You might have heard stories of how bad credit history can affect your borrowing in any institution.
Lending institutions have become more alert than before. And that’s why getting a loan can be so discouraging once you have a bad credit history. However, some ways can help you to get a business loan with a bad credit history.
Here are five fantastic ways to get a business loan with a bad credit history.
1. Accept a smaller amount of money
The lenders always want to help in return for interest. However, a business with a bad credit history can put them in the dilemma of what to do. So they can give you an option to accept a smaller amount of money compared to large ones.
Their main goal here is to reduce the risks if you cannot repay the loan. You can accept what the lender is offering and make sure to repay it fast.
These small amounts of the loan will be short-termed, such that the payment is quicker to reduce any chances of failing to pay.
You can set an agreement with the lender to automatically deduct a fixed amount from the business bank account every month. This agreement will be an excellent way to ensure on a timely basis.
In addition, it’s advisable to get a small amount of loan that aligns with your business loan. Some lenders will request a business plan so that they can decide on what to give you.
A business plan ensures that your business sticks to its sole purpose, thus staying for a longer-term.
The ability to repay a small loan may help improve your credit score and start qualifying for more significant amounts.
2. Provide a collateral
Providing collateral as a business can help you to get the loan. The lender assesses your asset to know its worthiness.
From there, they will know what amount of loan to give your business. In many cases, the loan is usually equivalent to or lower than the provided asset.
However, it’s not advisable to give your assets as collateral when taking a business loan. For example, if you use your home or private land as collateral, you may end up losing them to the lender.
Therefore, whatever you use as collateral for a business loan should be something like machines and equipment. This way, the lender will not touch your assets if you fail to pay the loan.
If the business cannot repay the no credit check loans guaranteed at VivaPaydayLoans.com.au at the designated time, the lender will sell the business asset you provided as collateral to recover the debt.
3. Pay a down payment
Depositing a downpayment to the lender can help them to entrust you with their money. A downpayment reduces the risk of losing everything. In addition, it’s a way to commit yourself to pay the loan.
The business loan down payments ranges from 10 to 25 % of the loan amount. So, for instance, if your business needs $10000, the lender can request a down payment of $1000 to $2500 before getting the total amount.
However, some business loans do not require a downpayment, but the interest rates are very high.
4. Use a guarantor/ Cosigner
You can use personal count to apply for the loan if the score is better than the business credit score. You will be salvaging the company at the expense of your personal credit history.
You can also get a friend or family member with a good credit score to help you get a business loan.
Getting another person to cosign for you means they are obligated to pay the loan if you cannot repay it.
Therefore, you should always be careful when identifying a suitable co-signer—they should be comfortable with the terms and have the ability to pay.
5. Borrow from online business loans
There are online platforms that link lenders to potential investors. While the requirements vary from one platform to another, it may be easier for a business to get a loan.
These online platforms do not require any collateral and the requirements are fewer compared to traditional banks.
What to do before you apply for a business loan
Well, now you know how you can get a business loan with bad credit. What you should know right now is what to consider when applying for a business loan.
- What is the status of your Profit and Loss account? Ask yourself whether you are making enough profits that can repay the amount of loan you want.
- Do you have all the business documents required for loan application? If no, you should first work on the relevant documents to get a chance of getting approved.
- Can you afford to pay the APR of the loan you are planning to take? You should first window shop for business loans. Therefore, consider taking business loans with small APRs.
- Are you comfortable with the time you should repay the loan? And is it possible to reschedule the repayment dates with the lender?
- You should also know the fees and penalties of late payment. In addition, there could be fees related to the loan processing.
Knowing the factors mentioned above will ensure that you are aware of what you are getting yourself. In addition, it reduces the chances of misunderstandings during the loan repayment time.
In conclusion
When taking a business loan, be cautious about how you will repay the loan. Businesses can make either profits or losses, and it will be a bad ending if you make a loss on borrowed money.
Just a reminder, make sure you take a small loan that you can comfortably pay with your business. It will be a bad idea to sell your asset to salvage a dying business plus its unpaid loan.
Make investments that are more likely to reproduce gains, and you will be able to repay your business loan, hence building the business’s credit history.
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