A business loan can help to finance the different needs of your business and can take your business to the next level. It can be used for several purposes such as the expansion of business, purchase of inventory, working capital requirements, etc. However, in order to avail a business loan, you should have an excellent credit score. Lenders assess your repayment capacity on the basis of your credit profile. Here are some points you must consider if you have a bad credit score:
Your credit profile
Before applying for a business loan, make sure to check your credit score. You may assume that you have a bad credit score but it might not be as bad as you think. You can easily get a copy of your credit reports from credit rating agencies namely Experian, Equifax, and TransUnion. Review the report for any errors. If you find any error, report it to agencies with proof of payment, such as a receipt for having paid a bill on time. If you have an entry of late payment due to illness or unemployment, an explanation might help during the loan underwriting process.
The business credit profile
If you are planning to purchase a company, gather all the information about it. An owner who is reluctant to provide any information may be hiding something. Obtain merchant services, bank records, account transactions, inventory numbers, and tax returns. Request for budget items like lease information and payroll. Gather information on any existing debt on the business. You need to know the expenses and liabilities of your business.
You should chalk out a detailed business plan showing your revenue generation plan and project’s objective. A solid revenue model and a clear roadmap will help the lenders to judge the business’ feasibility and repayment capacity. It will also help the lenders to get a real picture of what the loan is used for.
Applying for a business loan
Whether you are buying an existing business or starting a new business, make an appointment to review your business plan with the Small Business Administration counselor. The advisor can help you to improve your plan according to the lender’s requirement. The counselor also has relationships with lenders who provide SBA loans.
When applying for a business loan, make your package as professional as possible and look like a business owner when you meet the lenders. Lenders view themselves more like investors and want to work with credible borrowers. Complete the application carefully and present supporting documents.
If you are denied a loan, you can add a co-applicant to your business loan. You can take advantage of their positive credit and maybe industry experience for getting the loan without any hassle. If you have any existing debt or loan, make sure to make repayments on time to improve your score. If you still can’t get a loan, search for private investors within your network or microlenders in your area.
Hence, availing a business loan with a bad credit score is not that easy. You should check your credit reports at regular intervals and in case of bad credit score, you should take steps to improve it.