Business owners who are looking for business capital may have to contend with the fact that they don’t have great credit. While this could make it harder to get a loan, it doesn’t make it impossible. However, it will be necessary to do some due diligence prior to asking a bank or other financial institution to provide funding.
Is a Loan Right for Your Company?
The first question to ask is whether a loan is right for your company. In some cases, you can get the funding that you need from other sources at a better price or with other favorable terms. In determining the answer to this question, decide what the money will be used for and how it will meet the short and long-term needs of the organization. If you still decide that a loan is worth pursuing, you can then look into the specific product that works best for your business.
Review Your Credit Situation
It is a good idea to review both your personal and corporate credit scores. Doing so can help you spot any errors that may be bringing it down. It can also provide some insight into why your score is lower than you want it to be. If there isn’t enough time to bring it up before requesting a loan, you can put your score into context for the lender. This may be enough to have your application approved despite your shortcomings.
Create a Tailored Pitch
A lender is going to want to know exactly what the money is going to be used for. For instance, you may choose to ask for cash to pay employees or to buy a new piece of equipment. During your pitch, you should demonstrate why the new employees or equipment will help the company make more money. By showing how the loan helps the company, the lender may feel better about its chances of getting paid back in a timely manner.
Get Documentation Together
The bank or other lending institution is going to want to see specific information about both yourself and the company. It will want to see a financial statement detailing your profit or loss over the prior year. This statement should also list your company’s current liabilities, assets and revenue. Ideally, this information will be reviewed and compiled by a professional accountant or accounting firm. By creating a professional look to your application, a lender will take your request more seriously.
Take Time to Consider the Loan Terms
Typically, lenders will give you several days or weeks to mull their loan offer. It is imperative that you take as much time as necessary to make sure that it meets your needs and the needs of the company. In some cases, you may want to have your legal and financial team look it over before agreeing to take the money.
If you do decide to borrow the money, you are obligated to abide by the lender’s terms until the proceeds have been repaid. However, if your company is struggling to repay it as agreed, the lender may offer flexible repayment terms to help keep you current. Make sure that you know whether the loan is secured or unsecured. This is because the company could lose its collateral if the business defaults on its obligation to repay a secured loan.
Obtaining capital for your business can be a complicated endeavor even for mature companies with good credit scores. If your a small business owner with less than stellar credit, you will need to work hard to gain a lender’s trust. Therefore, it is important that you understand the process of getting a loan and how to improve your odds of having it approved.