5 Tips to Qualify for an SBA Microloan with Bad Credit

An SBA microloan is only distributed if the borrowing organization meets specific community development criteria. A microloan, whether from the SBA or another organization, promotes a sustainable local business. If your business meets this primary criteria based on an assessment of your business plan, your credit will be the next item considered. Applying with bad credit is possible, but it will be a challenge to get an approval. Try these tips to increase your chances.

#1 Apply Early

The SBA has a limited amount of funds to distribute through local agencies each year. Once these funds are exhausted, no more applicants can receive loans. You have the best chance of getting approved if you submit an application at the start of the fiscal year for the program. Do your research to learn the earliest application date, and try to get your application in on the first day possible.

#2 Perfect a Business Plan

Your potential for success will be as high a priority as your credit. Even a borrower with perfect credit will be rejected if the business plan is not worthy of the funds. Perfect your business plan by seeking top financial advice to create realistic financial projections. The more detailed you plan can be in terms of costs and revenue projections, the better your chance of securing a loan.

#3 Seek Grants

If you are starting a non profit organization or a company that will significantly impact the job market in your given location, government grants can take some of the financial burden away from your loans. Grants do not require any repayment. Grants can be used as the down payment for a loan, decreasing the loan limits you are seeking. Bad credit borrowers with big down payments seeking low limit loans will have a better chance at securing the necessary funds than those seeking large loans.

#4 Recruit Top Officers

The board of directors or officers of your company will have an affect on how you are perceived by the loan agents. If you have little experience in a field you are entering, your loan will be less likely to meet approval. Seek top officers with a track record of starting profitable businesses in your field. Ask them to be advisers to your company and appear on your business plan. The credit scores of these advisers will not actually be used in consideration of your loan application. However, their names will help lower the risk of your loan. 

#5 Explain Credit Deficiencies

If you have defaulted on a government loan in the past, you will not qualify for an SBA microloan. In fact, any past default or bankruptcy can be a red flag. However, if your score is low because of occasional missed payments, a previous financial emergency or because you have a very short credit history, consider providing a statement with your application. Show you are credit worthy, and explain why your score is not an indication of how you have handled debts on the whole. In particular, low income borrowers seeking microloans may have a chance at approval through this method.

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