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How to qualify for a business loan with bad credit scores

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Small business loans can help a new business establish its first line of operations. Borrowers need to put in a little effort to qualify for these loans. They need to prove their trustworthiness for receiving the amount in full and on terms favorable for them. A good credit score indicates that the borrowers are likely to return the loan amount on time. In short, they can be trusted. Entrepreneurs with a good credit score usually find business loans more readily as compared to those with bad FICO scores.

What are bad business credit scores?

A bad credit score usually lies between 300 and 629. That might be a wide range, but the impact on the loan availability is almost the same. The people lying within this score range find it very difficult to arrange for business funding on time. Most lenders in the market have a minimum score requirement for lending money out. The qualifying score strength for these companies usually lies in the range of 500 to 650. Business owners often refer to these companies as the bad credit score loan companies. They focus on the business’ strength as a potential for returning the loaned amount. They rarely consider the business credit score or the experience of the owner. As long as the business plan seems sound and profitable, they are willing to lend the amount.

How do loan companies evaluate an applicant?

Companies that offer bad credit business loan consider many factors to evaluate the eligibility of an enterprise. Here are the most common factors they might consider while valuing your company for the loans –

  • Your annual revenue.
  • Record of defaulting on previous loans.
  • Recent bankruptcies.
  • Detailed business plan, investment plans, and oncoming projects.
  • Details of other investors.

What should you know before approaching a business loan company?

Before choosing a financing option, you may want to consider the following options –

Lower credit scores have more chances of attracting higher interest rates.

  • In case, you have defaulted on payments before; you might want to check their late payment penalties and other fees before committing.
  • Unpaid customer invoices and employee salaries call for invoice factoring since they can get you instant cash. However, prepare to pay high-interest rates for the immediate access to capitals.
  • You can consult business credit counseling organizations for learning methods to improve your credit scores. Enhancing FICO scores by just 20 points can help you find better rates and repayment terms.

What are the bad business credit score loans suitable for you?

Businesses that are less than a year old do not get much time to build their credit score. Startup financing and small business financing options are slowly, but steadily growing in number. Here are a few options for your brand-new business –

Business credit cards

These are different from personal credit cards that usually bear very high-interest rates. Business credit cards offer lower interest rates on higher borrowing amounts. The typical business revolving line of credit usually provides around $50,000. The approval here also depends upon your current credit score and business credit profile. Most companies require a FICO score of 650 to qualify for a business credit card. With impressive scores, you may even find a company that offers $250,000 on revolving credit.

Alternative lines of credit

Several website lending platforms are now present that offer new enterprises business capital for FICO scores of 500 minimum. Some of them even provide business capital of $100,000 or more. While they do not have mandatory credit score requirement, the current borrowers usually have a score of 500. Additionally, most of these companies require the qualifiers to have annual revenue of at least $50,000.

Invoice factoring

Contrary to the loan-sharking invoice factoring companies of the 90s, the modern web-based invoice factoring services offer amicable rates and repayment terms. Some of the online organizations even lend over $450,000 to the borrowing businesses depending on their business history and revenue generation. Many of the right companies do not have prepayment penalties. They require minimum revenue of around $25,000, and they usually do not demand business experience of more than a year. They evaluate the eligibility of the business by considering its capability to generate profit.

Small business loans are plenty, and you will come across an umpteen number of options as you begin your search. Several third-party sites have lists of funding options ideal for your business. The best business loan offers don’t just come and land on the table. You need to work a little to find the best offers. Sometimes, this involves researching your options online, and at other times it requires you to improve your FICO score before approaching a lender. A poor credit score should never deter you from exploring your options for financing your entrepreneurial dreams.

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