How to Obtain a Bad Credit Small Business Loan through a Traditional Bank

Most banks do not offer bad credit small business loans. If you have a low credit score, you will find it easier to locate financing with an alternative lender. However, those lenders tend to offer riskier, less favorable loans. If you can find a bank willing to work with you, then you will typically receive a better loan. There are some strategies you can employ to increase your chances of securing this type of loan through a traditional bank.

Prepare a Detailed Business Plan

A detailed business plan is a business owner's most essential tool to secure necessary financing. Personal loans require nothing more than credit and income. Business loans, though, require the business owner to show a high potential for future profit. The only way to do this is through a detailed business plan showing reasonable guarantees for profit. A business plan needs to go beyond describing the elements of the business. It must show real numbers gathered from market research including these: cost to market, cost to deliver the good or service, cost to operate on a daily basis, price per unit and expected profits. These are just some examples of the metrics your business will be evaluated with. 

Secure Investor Funding

A company's financial statements will have an impact on the funding they can secure. If you are looking to open a new company, you will not have any previous financial statements. However, you can still show positive assets on a current statement. To do this, you will need to put up some funds. You can do this by using your personal cash, or you can seek investors for your initial sums. Most businesses will rely on investors to gain that boost of equity they need to provide some security on a loan application. 

Offer Collateral

Once you have this cash, you can use it on a down payment for the loan or even purchase assets for your company. For example, a company that will need an office can purchase basic office supplies like servers and computers. These can be placed as collateral on the loan. You do not need to purchase supplies for your business to have collateral, however. You can always use your personal assets, such as your home or car, to secure a loan for your business. This is much riskier because you can lose these assets if your business fails. As soon as your business is standing on its own, it is best to replace these assets with business assets to limit your liability.

Seek Guaranteed Options

The Small Business Administration offers several guaranteed loan programs to help small business owners get started. Unfortunately, these programs require fair-to-good credit. There are a few options, though, that are extended to people with lower credit. For example, if you are able to show you can drive up the local tax base in your given area, you may qualify for a specific loan. The same thing may be true if you can provide jobs to a market that needs them.

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