Qualifying for a business loan could be challenging, especially if your credit score is not stellar. A business loan differs from a personal loan. The approval criteria for them are not the same as unsecured loans. Business loans are not too small. For instance, you can borrow up to £100 when you need it to have your car repaired, for instance, but no lender approbates such an exiguous amount of money when you need money for business expenses.
Business loans are approved when your credit score is decent. If your business has a separate legal entity, you must have a business credit rating. A lender would carefully peruse your business credit rating and personal credit score in order to carefully check your affordability. Business loans are quite expensive. It could be challenging to repay them if you try to borrow more than your affordability.
Here is how a business loan can be secured despite a bad credit rating:
Have a strong business plan
A business plan is not required when your business is already established. This condition is usually applicable when your business has just been launched. Start-ups are risky. There is no guarantee that your business will flourish in years to come. The risk in lending you money is quite high. If your business fails to produce profits, you cannot discharge your debt. A lender would carefully assess whether your business has the potential to grow or not, which is why they need a business plan.
You should try to have an impressive business plan. Your business plan must be able to reflect projected profits, how you will reach your customers, estimated business expenses and, above all, a repayment alternative. If your business does not have an alternative repayment plan, you will be straightaway repudiated. A lender would require a backup plan in case your business fails to make enough profits.
You should carefully craft a business plan. Keep your lender in mind when you are writing a business plan. Brainstorm what your lender would like to know about it. A strong business plan would increase your probability of qualifying for startup business loans for bad credit with guaranteed approval in the UK.
Secure your loan
There are mainly two types of business loans – secured and unsecured. Secured business loans involve collateral. You will have to secure your loan against your business asset. However, unsecured business loans are not subject to collateral. Secured loans are larger than unsecured loans. It depends on the lender’s policy on how much they would be able to lend you money without security. Some lenders do not borrow more than £5,000, while others might be disposed to lend up to £10,000 without demand for collateral.
If your credit score is not stellar, you should try to secure it against a valuable asset. Bear in mind that your lender would consider collateral worth more than the loan amount so they could cover their money in case of a default. No depreciating assets are regarded as collateral. Your lender might ask you to give a personal guarantee, too. It means you will have to repay the debt using your personal assets. If you are looking to take out a secured business loan, your lender might ask you to arrange bigger collateral. You should carefully assess your repaying capacity because if you fail to clear your dues, you will end up losing your collateral.
Equipment financing
If you are looking to borrow money to purchase equipment, you should consider equipment financing. This is a more suitable alternative to an unsecured business loan. This is because the equipment you purchase will be considered collateral. As the loan is secured in nature, you will be able to qualify for lower interest rates. However, the risk is still too high. In case you lose money, you will end up losing the equipment. Some lenders may require you to put down additional collateral. There are chances that you will lose that asset, too, if your lender fails to cover their money back by liquidating the equipment.
You should weigh up the pros and cons of equipment financing and unsecured business loans. Understand how they work and then decide which one you should pick in case you need money to purchase equipment.
Improve your credit score
Just because a direct lender bad credit loans with guaranteed approval are available, it does not mean that you should not ameliorate your credit score. A credit score improvement is a must if you are serious about securing a business loan. Your business credit rating and personal credit score should be good. It is likely that they are not so stellar, but you should still be able to have it good enough to be easily approved. Before applying for a business loan, you should carefully ensure that your credit score is not lower than the minimum requirement your lender has set.
Here are the ways to improve your credit rating:
- Pay off your business loans on time. If you are using a business credit card or a business line of credit, make sure that you discharge the debt in full on time.
- Pay to your suppliers on time. This will help improve your business credit rating. If a lack of working capital makes it difficult for you to discharge your obligations, you should consider using other methods, such as reducing the collection period from your debtors.
- You should try to pay attention to your personal credit rating, too. Pay off your bills on time. You should always try to repay your credit card debt on time.
- Apply for a loan only when you are in need. Make sure that you do not put in multiple applications. Doing so will lower your credit score.
You should always try to focus on improving your credit score. Consult a financial expert who will help you ameliorate your credit rating.
Apply with your partner
If you are running a business with your partner, you can consider applying for a business loan with them. Having another partner as a co-borrower would increase your probability of securing a business loan, provided your credit history is stellar. If your business has a separate legal entity, you would be taking out a loan in the name of your business, but you both will have to give a personal guarantee, which means you both will be responsible for discharging the debt.
Demonstrate a strong financial condition
You should always try to demonstrate a strong financial condition to your lender. If your business is generating a high amount of profits, you will be able to qualify for lower interest rates despite a bad credit score. Lenders are generally more convenient when your overall business condition is good.
The final word
Securing a business loan with a bad credit rating can be challenging, but there are still some ways to improve your chances of your credit rating. You should try to arrange a co-applicant, secure your loan and have a strong business plan. Though there is a possibility of getting a business despite a bad credit rating, you should always try to ameliorate your credit score. A decent credit report will improve your chances of securing a business loan easily.
