When you apply for a business loan, lenders will want to investigate your credit history. While it is not unusual for small businesses to have gone through rough patches or for owners to have tried their hands at several businesses before they succeed, this can result in a poor credit score. Many business owners worry that this will hurt their chances of a loan being approved.
The truth is that bad credit can affect your chances, but it does not mean that your application will be automatically rejected. Lenders know about the challenges that businesses face, and there are things you can do to improve your chances of getting approved despite bad credit. Here are some helpful tips you can use.
1. Prepare a solid business plan
Lenders are more interested in your ability to repay them in future than they are about your failure to repay in the past. It informs their decision, but it is only one part of the bigger picture. And the good thing is that you can shape the rest of that picture with your business plan.
A good business plan should include things such as market research, revenue forecasts, your objectives, and how you plan to achieve them. This is not just to impress the lenders; it will help you run your business more effectively too.
2. Choose an appropriate lender
Rejected loan applications can do further damage to your credit, so shop around different lenders to find suitable ones. You will usually find several lenders offering business loans for bad credit in Sydney, other big cities, or online.
Look for lenders whose minimum criteria you meet and whose fees are not only low but very clear. Some lenders will also do a ‘soft’ credit check to see what loans you qualify for before you officially apply. This does not affect your credit score.
3. Make sure your finances are in order
There are things you can do to improve your credit score, but these often take a while to have an effect. What lenders will want to see now is that your company is in a strong financial position. That means having things like a consistent stream of revenue and a low debt-to-income ratio. This is a good indicator of financial resilience. It suggests you can still repay even if there are problems in future.
4. Get a guarantor
A guarantor or co-signer is someone who agrees to repay the loan if you do not. This reduces the lender’s risk, so you often get a lower interest rate if you have one.
5. Secure your loan
If you cannot get a guarantor, the next best thing is to secure your loan. This is when you promise to give the lender some of your assets if you cannot repay them. You often have to pay a fee to have an expert value your assets if you do this.
Conclusion
A bad credit score is not a business death sentence that will stop you from getting loans. However, you will have to be smart and work hard to earn the trust of lenders. A solid business plan, good financials, and a backup plan in case you cannot repay will all help you to do this.
