First things first, you ought to know that even if your credit is in a terrible state, you might still be able to get financing for your business. Granted, it won’t be easy; but it’s still possible.
There are several options for you, but you have to know that bad credit business loans come at a higher risk. If the circumstances were different, you probably wouldn’t want to take them. However, desperate needs ask for desperate calls – so if a bad credit loan is a solution for your business, then this article will cover the basics of what you need to keep in mind when applying for one.
What are the Options?
As mentioned, even if you have bad credit, the door to getting financial aid is not fully closed. However, the choices may not be so ideal. When banks lend you money, they will do so based on your credit history – and apply the interest rate accordingly.
Therefore, the worse your credit history is, the higher the risk of default – and the higher the interest rate. Furthermore, if your company hasn’t been around for much time, then they will also have to see a pretty strong and detailed business plan. They need to be sure that eventually, you will earn the money to pay back the loan.
Here are your options when it comes to bad credit business loans.
Traditional bank lenders are not as likely to offer you bad credit business loans if you have been “tainted” with very bad credit; however, it is not impossible. Different banks have different limits, so while one bank might show you the door, the other one might actually consider you.
Keep in mind that since banks are more thorough and less likely to take risks, they will bump up the interest rate – and will probably also ask you to list collateral and bring in some co-signers. They will request for anything that will ensure you will pay off the money.
Microloans are similar to a traditional loan, but they are usually bad credit business loans that you take from an alternative lender – for example a credit union. A microloan is usually easier to get simply because the amount of the loan is smaller – and therefore, it can be paid off quicker.
This may not be a very good option if you need a lot of money. However, if you only need a small amount of money (5,000 AUD or so), then a microloan might be a more suitable choice for you.
Business Credit Card
If you can secure a credit card in the name of your company, then you might also be able to get financing and fix your credit at the same time – just as long as you make timely payments.
Obviously, for these kinds of bad credit business loans, there will be a variable interest level, credit limit, and repayment plan. Depending on the bank or credit union you are going for, you may or may not be able to strike a deal with them.
Home Equity Credit Line
Popularly known as “betting the farm,” this option is high risk because you’re basically putting your house on the line. If you are a renter, this option will not be good for you; however, if you already own a house, you might be able to offer it as collateral.
As long as you make the payments on time, it should be safe. However, if you have doubts regarding your ability to make them timely, this is not the option for you.
Friends and Family
If you have friends with money or some rich aunt that could invest in your business, then you might want to try asking them for a loan. However, you might want to make a written agreement on it; it will make things official and ease their minds.
Keep in mind, however, that family knows you better than banks. So if you asked Aunt Susan for money before and you didn’t give it back yet, be sure that Aunt Carol will be reluctant to give you any bad credit business loans if she hears that.
Are Bad Credit Business Loans Worth the Risk?
Bad credit business loans will most likely drag some bad cats out of the bag. The high interest rates will have you paying more than you normally would, and untimely payments may dig you an even deeper grave that you were in before you took out the loan.
Before applying, ask yourself this: do I really need this loan right now? If you have terrible credit but aren’t in need of immediate financing, you might want to try building your credit first. If not, look for lenders that won’t have such high interest rates Contact ALC Commercial to discuss your options today.