Having good credit means you have the opportunities to get funding for your business when needed, and having bad or no credit means you have nothing. Bad credit can make the situation even worse than low credit. Many business owners with bad credit found it difficult to get the much needed funding from banks. The emerging industry of alternative lending has made the problem solved by providing bad credit business loans.
Why Traditional Financing Is Not An Option for Bad Credit?
When getting small business funding from traditional financing sources, you are liable to pay penalties on late payments, and other types of conditions attached with it. Funding from traditional source involves a very open structure. You borrow funds at either fixed or variable interest rates and make regular repayments until the complete amount of loan is repaid. But applying for loan with bad credit will result in rejection. As the traditional lenders are not giving funding to borrowers with bad credit problems.
Alternative Financing is the Real Game
Alternative lenders are more in the game of bad credit business loans as they are will to take the risk of bad credit. Therefore the chances of getting approved for a business loan with bad credit are high than traditional banks. Their lending process is fast and they make decisions on loan request quickly that will help business owners with bad credit to fulfill the financial needs of their business timely.
Credit Score Matters
Knowing your personal as well as business credit score is helpful. Get a copy of your credit report and check it if there is any glitch on your record. If you have paid off all previous taxes, and other liabilities, make sure that the markers are no longer reported on the credit report. Try to discuss these markers with your accountant and try to remove them from your credit report.
Different Loans for Different Credit Scores
If you have a credit score of above 700, the possibility of getting loan from a traditional lender is worthy. Having credit score of 650 to 700 makes SBA loan a much favorable business funding option for you. Credit score of below 650 limit makes you a perfect borrower for traditional business funding options. But for traditional funding options, you need to show that your business is in upward trajectory.
Three Major Factors Alternative Lenders Will Consider
Here are the three major factors that alternative lenders will consider;
- Your Annual Revenue
Your business’ annual sales are the most important factor that the lenders will consider when making decision on your loan request. If your annual revenues are in upward trajectory, your alternative lender will be willing to take the risk. What they only need to be sure is that the borrower will be able to pay back their amount.
- Current Debt
Your lenders will ask about who else the business owes money to. A business previously repaying a loan can experience trouble in getting another loan.
- Cash Flow
Alternative lenders also need to make sure that how well your business financials are managed. And how much amount of cash is in reserve. This will help lender evaluate your financials, and your ability to repay your debts.
Bad credit is not an everlasting state. By getting a bad credit business loan, you have the ability to improve your credit score by paying back your loan in a timely way.