Six Tips To Get A Loan For Business While Having Bad Credit
Business loan is available from many bank and non-banking institute to meet any financial needs. The lenders check the credit profile of a borrower. Read to know more about the tips to get a loan if you have bad credit.
Many a time a loan becomes critical to expand a business, particularly a small or mid-sized enterprise, or to even sustain day-to-day operations. In such cases, a business loan from a bank or a non-banking finance company can be useful. However, one of the factors that can make it difficult for a borrower to take a business loan is poor credit history.
Every bank and financial institution checks the borrower’s credit profile to assess the risk level and reduce the chances of a default. Lenders value customers with good credit scores and a strong credit history.
Securing a loan from traditional banks on low credit scores can be challenging. But there are several NBFCs and fintech startups that offer loans to individuals with bad credit. Here are a few guidelines that can help to get a business loan if you have a bad credit.
1) Understand The Eligibility Criteria:It will be wise to do a critical analysis of the eligibility clauses before applying for a loan. For example, the cut-offs in credit score vary from lender to lender. Similarly, a loan application on a bad credit can get approved if the lender is convinced that a business is generating positive cash flow consistently.
2) Get A Co-Signer:Applicants with poor credit scores may qualify for a loan if they get a co-signer. A co-signer is like a personal guarantor who lowers the risk for the lender. Ideally, a co-signer must have an excellent credit score and income-to-debt ratio. Banks mostly accept relatives or close business associates as co-signers.
3) Prepare A Detailed Business Plan:While asking for funding requirements, a detailed outline stating the business goals, how to implement them and a probable financial outlook for the next few years must be prepared.
A business roadmap gives the lender an insight of how the business will generate profit to repay the loan.
4) Back The Loan With Collateral:Another way of getting a loan is by offering a collateral like property, bonds, insurance policies, gold jewellery or any other asset of value. Lenders also accept unpaid invoices for pending payments as a source of funding. Opting for secured loans helps to lower the interest rate, too.
5) Look For Alternative Lending Options:When bad personal credit is a barrier, applicants should look for substitutes. A merchant cash advance or an overdraft facility on a current account can be useful.
Sometimes a new loan provider offering credit on flexible eligibility criteria can be a viable option. But if possible, applicants should never hesitate negotiating with their current lender.
6) Check Out NBFCs/Fintech Lending Platforms:Micro and small businesses experiencing financial difficulties can look for NFBCs or fintech lending startups for financial assistance. Many lenders and fintech startups follow easier norms and offer loans at a higher interest rate.
Getting business loans with bad credit can be challenging but is not impossible. Prospective borrowers can secure a loan despite having a bad credit score if they offer a collateral or bring a co-signor and guarantor on board or convince the lender of their business plans and show adequate cash flows to cover the repayments.