9 Questions to Ask If You Have Bad Credit but Want a Business Loan
Before you apply for a business loan, make sure you’re prepared to answer the questions below. These questions will help you determine if this is the right time for you to receive a bad credit business loan.
1. Do I have any collateral that can help offset my bad business credit?
If you have a house, boat, or any other big-ticket item that a bank can use as collateral, your business’s credit score won’t be as big of a factor. This is one of the first questions a banker will ask you about, so make sure to determine if you have any items to put up as collateral.
If you don’t have any collateral to put up, you might benefit from applying for a bad credit business loan through an alternative lender. This avenue may not require you to put up collateral, and some lenders are willing to work with businesses even if they don’t have a high credit score.
2. What is my business’s credit score?
You should know exactly what your business’s credit score is before you speak with a bank or lender. If your score is too low and doesn’t meet their requirements, you won’t waste your time. In addition, knowing your business credit score will make applying easier – if you have to guess what your score is, this could slow down the process.
3. Is my personal credit score enough collateral?
If you have a shining personal credit score, it can help offset your low business credit score. Because, after all, who runs your business? You do! Your personal credit score can be an asset to show you are reliable and trustworthy.
4. Can I wait for a few months or year to build up my business’s credit score?
If you can improve your credit score, you will find lower interest rates, more flexible payment terms, and an overall better experience. Having a better credit score will enable you to have an easier application process, and you’ll be in a better financial situation when you go to repay your loan.
5. Is my business in trouble because I have unpaid customer invoices?
According to NerdWallet, you can borrow business loans that turn your unpaid customer invoices into physical cash. When your business’s credit score is low and you have no major collateral, lenders look to your customer base to gauge the quality of clientele you work with. If your customers don’t pay their invoices, short of taking them to court, you don’t have many other ways to receive the money that you’ve earned.
6. Do I need a large lump-sum, or can I borrow money in increments?
You may find that applying for a new business credit card is cheaper in the long haul than a large lump-sum of cash. Be prepared to show your banker or lender why you need a lot of cash in a short amount of time with project timelines, business proposals, debt management charts, and other documents. These details will help you explain why you need a loan, instead of another product.
7. Can I turn to investors, rather than loans, for business financing?
Many companies, large and small, get funding from investors, rather than applying for a loan. In fact, according to Entrepreneur, 75 percent of funding for early-stage businesses is from investors.
Ask around and see if there’s anyone willing to invest in your business for an agreed-upon return on investment within a specific time-frame. Be wary of asking for a loan from a family member or friend, though. If you’re unable to repay your debt, you could damage your relationship with the individual who provided you with financing.
8. Can I get funds from micro-lenders, rather than a loan?
Your lender may ask you if you’ve considered investors, micro-lending, and other avenues for a cash influx. Although peer-to-peer (P2P) lending usually deals with lower amounts of money, you can still receive a decent amount of cash from this method of borrowing.
9. Am I ready to apply for a loan?
When you apply for a bad credit business loan, you should be prepared for almost any question. We’ve reviewed several important initial questions you’re a banker or lender will ask you, but you should think critically about how a loan would affect your business. If you have a good explanation for possible scenarios, you are in a great position to land a bad credit business loan.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.