Being the owner of a small business doesn’t mean your dreams have to be small too. In fact, your small business is more important than you think, both to your employees and the local community. So, you definitely should do the best you can to expand it. Of course, that often means reaching for external funding. But if you have bad credit, things are more complicated. Small business loans – bad credit is a rough combination, but there are still options available for you.
Opportunities Are Precious
Running a business mostly relies on a carefully planned budget and closely monitoring the activity. However, many times it’s all about using opportunities as they come along. That’s especially true for small businesses. Opportunities can come in many forms. You may discover the extra space you have been dreaming about for some time is on the market. You may find a great deal to expand your inventory and make more profit in the future. Someone you’ve been trying to hire for a while is finally thinking of changing their employer.
These are just a few examples of how opportunities make their way into your business life. What they all have in common is the element of surprise. And chances are you will mostly feel the surprise on a financial level. It’s extremely hard for a small business to keep money aside for situations like these. If you have a contingency budget, that’s meant for avoiding debt, and it’s a smart decision.
The thing about opportunities is that they don’t show up when you’re ready for them. But you still have to do everything you can to use them, because you don’t know when or if they will return in the future. So, despite your desire to do everything using your own forces, you will have to find the money outside your business.
The Bad Credit Tag
Bad credit is definitely not one of the tags you want to be attached to your business. But it happens to many small businesses more often than you think. It’s not a catastrophe, but there are some unpleasant consequences. First of all, banks won’t exactly compete trying to get you as a client. In fact, you probably should forget about them for a few years. So, you turn to private lenders or even friends and family.
It is definitely possible to find lending sources even if you have bad credit, but there are a few negative aspects you need to prepare yourself to face. Rates will be higher, and you will have to pay it off in a short amount of time or your credit score will become almost zero. But that doesn’t mean you should get discouraged.
What Are the Steps to Getting a Small Business Loan with Bad Credit?
The good news is that it is possible to get a loan for your small business despite that bad credit tag. You just need to be very well organized. Here are the steps you need to take to improve your chances:
- Take a close look at your credit score. You need to know exactly where you stand. Both your business and your personal credit history will be carefully studied. Make sure there are no mistakes and if you find any take care of it with the credit bureau. Any small improvement will matter.
- Consider your options. Find the one that provides exactly the sum you need and has the lowest rates and best conditions overall. The reimbursement period, for instance, is very important.
- Prepare a business plan. Lenders will be more motivated to consider your application if you also show them exactly how you plan to spend the money. That proves to them that you have thought this through and are prepared to pay the money back.
- Providing collateral can be very useful, it will definitely improve your chances. But it’s a very serious step, so think twice before doing it. Using your equipment as collateral is acceptable, but your home should probably be kept safe from any dangers.
- A co-signer could help for sure, but they are not easy to find. They will be sharing your responsibility and will be placing their own finances and credit score at risk. So, you need to find someone who really believes in you and your business and is willing to take such a risk.
What are the Small Business Loans – Bad Credit Options?
There are quite a few options available, but you must carefully analyze each and balance the pros and cons. You can use business credit cards, short-term loans, microloans, merchant cash advance, or a short-term line of credit. Or simply try a bad credit business loan, which is specially created for situations like yours. You may not qualify for all of them, so read the conditions and requirements in depth. Lenders usually require that you are in business for a few months before applying, that you generate certain monthly revenue and that you don’t have more than a certain number of negative days each month (usually 3 days). If those options don’t work, you can try reaching to your friends and family, though that’s not always a good idea.
All in all, is it a good idea to get a small business loan if you have bad credit? Well, there’s no general answer to that question. It depends on your particular situation. You must consider exactly how bad your credit is, how much money you need and if you are able to pay it back and, ultimately, if this solution will put your business back on its feet or simply postpone the inevitable. It’s up to each business owner to analyze and decide, but it’s extremely good to know that options do exist.