Essentials of Borrowing
How to Get Small Business Loan Despite Bad Credit Ratings
This article is for those who have had the misfortune of falling to bad credit rating. It should surprise and delight many of you, that small business loan for people with bad credit rating is available. Now the question arises; how can one avail of such financing. Well, read on…. To be frank, don’t even think of going to banks. No bank worth its salt is going to touch your business loan if you have personal credit score less than a certain limit.
But there is much more to the business lending than just banks. For other types of lenders, your personal and business credit score will still be important parameters, but not to the same degree as the Banks. Let me explain the credit score first. In short, your credit score is a numeric result generated from an algorithm used by the credit reporting agencies to determine an overall level of credit worthiness. The algorithm considers multiple factors that contribute to your overall score.
Bad credit score apart; following can also make you a bad credit candidate: • NSF Checks • Recent Late Payments • Historical Bankruptcy • Loan Write-offs and Settlements • Credit In Arrears • Numerous Credit Inquiries Remember; the more recent your repayment bouncing, the more difficult it will normally be for you to acquire any type of financing. Take the following steps before applying for bad credit loans: • Separate your business credit from your bad personal credit by forming a corporation or LLC (Limited Liability Company) and applying for an EIN (Employer Identification Number). • Use your EIN to establish a business credit profile completely separate from your bad personal credit. • Build a strong business credit profile while repairing your poor personal credit. • Prepare separate financial statements for your business. Bad credit financing is usually provided by asset based lenders or cash flow based lenders. Asset based lenders provide financing against assets such as: real estate or machinery. Bad credit financing from asset based lenders can be very expensive. They are also very stringent in case of any miss in repayment: they seize the assets pledged as soon as possible as per law to liquidate them. Success in securing bad credit financing depends on the following factors: - Your ability to explain; why and how the bad credit happened and how you tried to avoid all that.
- Your short term ability to repay. - The type and quality of the assets and/or cash flow. Business Cash Advance, a Good Alternative: You can also opt for cash advance. Business cash advance is not a loan and the organization offering this cash advance gets their money from the credit card sales that the business does in a specific period, there by reducing the burden of paying back the loan, and the terms and conditions to qualify for such cash advance are also relatively simple. There are quite a few organizations which provide such cash advances. Organizations like MerchantCashDirect usually provides cash advance for working capital needs. They more often than not, target specific industries. To expand the example of above mentioned organization: They seek to provide funds to people into restaurant, retail or service industry processing at least $4000 in credit card receipts per month. You can not wish away your bad credit history, but you can improve your bad credit financing options by starting to pay your debts on time, thereby reducing as much debt as possible.
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