How to get approved for a bad credit business loan | Fora Financial Blog
How to Get Approved for a Bad Credit Business Loan
December 21, 2017
How to get approved for a bad credit business loan

How to Get Approved for a Bad Credit Business Loan

If your business is struggling with a poor credit score, you might believe that it is impossible to be approved for business financing. In reality, you can still land a business loan – despite a less than stellar credit score. To do this, your application must be organized and meet the other requirements. By being prepared and transparent throughout the process, the lender will be more likely to view your business as a trustworthy entity worth investing in.

To increase your chances of qualifying for a bad credit business loan, follow the recommendations featured in this post!

Know your monthly sales amount

A lender could likely review your financials to find out the answer to this question, but you should have an idea of this number anyway. By knowing your business inside and out, you’re setting yourself up for a better chance of landing a bad credit business loan. Regular monthly deposits into your bank account show that your business has consistent, reliable income to help pay off your loan. If a lender sees that you meet this requirement, this will help your case!

Explain any ongoing debts or other issues

If you know there are weaknesses in your application, like a low credit score, bring them up first. Lay everything out on the table so you appear honest and trustworthy. Similarly, you should have some reasoning behind any long-term or ongoing debts.

If you’re majorly behind on these payments, the bank or lender won’t look favorably at your application. Still, the best thing you can do is ensure that you have a plan for paying off the debt in a responsible manner, and relay this to your lender in a succinct way.

Include your personal credit score

Some lenders may not care about this aspect of your application. Others will require it, especially if your business credit score is low. Add it to your application, especially if it’s high, since it will boost your creditworthiness. This goes along with our next point, particularly if you have a lower credit score.

Find a business partner who has excellent personal credit

The U.S. Small Business Association recommends having a business partner with good personal credit. If you don’t have a high personal credit score, it may be time to consider bringing in outside partners to split profits and increase investments. If you can recruit a partner who will vouch for the company as an executive or co-founder, you can score a larger loan or get approved for a lower interest rate.

Know how you plan to use the business loan

Your plan for how you’ll utilize a business loan is as important as your qualifications for the loan. Most lenders will want to know how you’re going to spend this money, and will want to determine if you’ll still be able to generate enough revenue to repay your debts.

If you can’t convince the bank or lender why and how your use of the funds will boost revenues for you, you’re going to have a tough time getting approved. Make sure you have an idea of what the primary uses of the loan will be, any secondary expenses, and what you plan to do with any leftover cash.

Highlight any collateral or physical assets

As with most lending institutions, collateral is key in landing a loan with good terms. If you have a house, boat, office, or other high-value physical items, you can list these in your application. Include an appraised valuation amount for each item, because this will help speed up the process. If you have significant collateral, the lender might be able to give you a decent term and amount, despite your low credit score.

List unpaid invoices as collateral and point them out

If you’re expecting a big check from a customer, but their payment is delayed, the bank can take this into account and loan you money based on that guarantee. Often, the lender will only issue the same amount as your unpaid invoices, but you can negotiate for a higher amount if needed.

Know why you can’t use a credit card instead

Like the previous recommendation, you need to exhibit that you’ve considered other options for additional working capital. As NerdWallet points out, if you’re able to wait for a cash influx, use a credit card, or focus on boosting your credit score. That way, you can apply for a loan once you have an improved score.

Next Steps

It never hurts to turn in an extremely polished application and bring up pain points before the lender does. Banks are notoriously difficult to convince, and not all alternative lenders work with businesses with poor credit, but if you’ve done your due diligence, you have a much better chance of getting a business loan.

Fora Financial

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.

Post by:
Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].