Today, the average American has $90,460 in debt. Being in debt can impact your credit score, and once it’s low, it can be difficult to raise it again.
While you might feel like opening or maintaining a business is a pipe dream, that isn’t necessarily the case. The good news is that you can obtain a business loan, even with poor credit. Read this guide on why you should consider a business loan even with poor credit today!
Why Consider Bad Credit Business Loans?
Many business loans will have requirements that are hard to reach. The good news is that business loans are available for those with poor credit in California. Opening a company can be expensive, but a business loan can prevent you from building more debt.
Identifying Your Business Credit Score
Your business credit score is tied to your employer identification number. It can be registered through Dun & Bradstreet, Experian, and Equifax.
Each company has its own format for calculating your credit score. It can include public records, time in business, the size of your business, and your personal credit score.
A FICO score is your personal credit score. It ranges from 300 to 850. The three credit reporting bureaus to calculate it includes TransUnion, Experian, and Equifax. It can include debt repayment, outstanding debts, the length of credit history, and any new lines of credit.
Private money loans for businesses want to see that your business keeps several months’ worth of expenses in cash reserves. While some might expect six months or more, others only require three months. Cash reserves will show lenders that your business can cover loan repayments even when sales are down, or unexpected expenses occur.
Lenders might look at your assets to use as collateral for the loan. They’ll seize these assets if you aren’t able to pay back the loan. They can include real estate, land, and machinery equipment.
Various Bad Credit Loans
Business loans for poor credit include invoice financing, hard money loans, short-term loans, and more. Hard money loans use collateral instead of your credit score.
Short-term loans can include term loans. Term loans are often paid in three years or less. Lenders will often view your cash flow instead of your credit score. Lenders often approve the application if you have enough revenue to cover a short-term loan.
Invoice financing isn’t exactly a loan. It’s when you sell your accounts receivable at a reduced rate.
When the invoices have been sold, a factor begins collecting the payments owed from your customers. Invoice financing is best for those needing growth capital or who have a seasonal business.
Microloans could offer your business a loan of up to $50,000. Microloans are through nonprofit lending organizations.
They can be used for new furniture, working capital, inventory, and building fixtures. Each lender will have its own requirements for microloans.
Merchant Cash Advance
About 82% of small businesses fail because of cash-flow problems. If you have cash-flow problems, a merchant cash advance could help.
Most cash advances have high-interest rates, which means you’ll pay more in the long term. If you miss a payment, then there could be additional payments.
To qualify, you’ll need a credit score of over 550. Your company must also make more than a hundred thousand yearly sales.
The loan amount won’t go beyond ten percent of your revenue. This loan can happen as quickly as a week.
A Lower Amount
One of the options to improve your chances of a business loan is a lower loan amount. You’ll be able to repay it more easily and not worry about digging yourself into debt.
Check your financial forecasts, balance sheet, P&L statement, and business plan. Run multiple forecasts to determine how much of a loan you can afford and what you’ll need.
Things To Consider
Before applying for business loans, look into the required documentation for each. Keep all financial documents up-to-date. Find alternative lenders if they require documentation longer than you’ve been in business.
Find out how long you have for repayments. Lenders might have short-term and long-term options. Each option might have different fees and APRs.
Depending on the lender, you might need a down payment. Many might also accept a form of collateral. Look into the time to repay plus the interest rate instead of a down payment.
The annual percentage rate (APR) shows the interest you’ll be paying on the loan. For lower credit scores, you might have a higher APR.
Look into the APR before you accept a loan. See if there are loans that’ll allow you to have a lower interest rate over time.
Additional costs and fees might occur. Late payment fees, closing costs, and underwriting fees could add up. Ask about them upfront and ensure you can pay for them before you agree.
How a Business Loan Can Help Your Company
After exploring this guide, it’s clear to see why a business loan can help your company succeed. Speak with different lenders to see your best options and discuss what you can afford beforehand.
Are you ready to get started with a business loan? Even if you have poor credit, we can help!
Contact us today. We specialize in various commercial loans for companies in California. From personal to small business loans, we offer multiple options. If you have any questions, we’re happy to help!