Nobody likes being rejected. Rejection triggers a variety of emotions; it can make you sad and disappointed, and leave you feeling helpless. Nevertheless, we have all been rejected by someone during our lives – for the high school prom, for a spot on a varsity team, for a university, for a dream job, for a lunch with co-workers. Rejection is also quite common in the business world. Most entrepreneurs have experienced some form of rejection along the way. When trying to land new clients, negotiate building leases, or establish partnerships, small business owners will likely be told “no” quite often.
Business owners also face rejection when applying for loans, especially if they have bad credit. The FICO score is frequently used by lenders when reviewing loan applications; it ranges from 300 (low) to 850 (high). A FICO score that is below 580 is considered poor. If your bank, credit union or lender has denied your business loan request, Balboa Capital understands how frustrating it can be. However, do not be discouraged, and do not give up trying. Keep reading this blog post to learn how to get a business loan with bad credit.
Realize you are not alone.
Banks reject 7 in 10 small business loan applications, and poor credit scores are the number-one reason why. Therefore, if you do not meet the borrowing requirements of your bank or credit union, there is a good chance that your application will be rejected, and that is nothing to lose sleep over. Just realize that you are one of many business owners across the country who are in the same predicament.
So, stay positive and ask your bank or credit union why your loan was denied. In the majority of cases, bad credit is the culprit, but there might be other reasons that you do not know about. These include errors or inconsistencies on your application, excessive debt, or too many hard credit inquiries.
Run a credit check.
Running a business is an ambitious and involved undertaking, one that involves a big initial investment and ongoing expenses. Whether your business is just starting out, or has been operating for many years, it has a detailed credit profile that plays an instrumental role in the loan approval process.
That is why you should run a credit check with one of the leading credit bureaus. It is the only way to see a complete snapshot of your credit history and find out if you are in good standing. If you pay your bills on time and have not taken on too much credit, you will most likely have a strong credit score.
Pay your bills on time.
Nothing worries a lender more than a business owner who is not paying their bills in a timely manner. If you are having a difficult time paying your suppliers and bills, and you have a bunch of late payments on your credit report, your chances of getting a loan from a bank or credit union will decrease significantly. Prior to applying for a loan, check to make sure that all of your accounts payable are current.
Do not try to borrow too much.
Unless you have a large amount of equity and strong cash flow, borrowing heavily might prevent you from getting a loan. Banks and credit unions prefer to lend money to business owners who are not buried in debt as a result of having multiple loans or lines of credit.
The more money you owe, the more you will have to pay on a monthly basis. Look at ways to consolidate so you can reduce the amount of debt that your company is carrying. This will work to your advantage when it comes time to apply for a loan.
Look beyond the bank for funding.
The majority of small business owners look to banks when they need loans. This makes perfect sense because banks have large advertising budgets and more brand recognition. Unfortunately, the bank might not be the right choice if you are struggling with bad credit. So, look at the other lending options that are available. There are online lenders that specialize in bad credit business loans.
Their approval requirements are easier; they look at your time in business and financials more than your credit score. However, a bad credit business loan is typically unsecured and more risky for the lender. As a result, you will have a higher interest rate on your loan.