It’s never been harder to get a loan than right now. The 2008 crash forced lenders to reconsider their policies. A poor personal credit record can put an end to the idea of starting a business. Getting a business loan with a poor personal credit history isn’t impossible.
You just have to think outside the box when seeking business financing.
Step 1 – Boost Your Credit Record
Unless you need the money right now, focus on building up your credit history again. Even upping your score by a hundred points can instantly expand your options. Start paying off your debts, making the repayments on-time, and inspecting your credit history for any errors.
This should be part of your on-going personal financial strategy.
Step 2 – Can You Get a Secured Loan?
For larger amounts, you might want to consider putting up some of your personal assets as collateral. Many business loans are unsecured, which means the bank can’t take your house or your car if you don’t pay. A secured loan gives the lender peace of mind because they know they can simply repossess the item if you can’t make the repayments.
Ask about secured loans. Just make sure you know you can pay the amount back before you apply.
Step 3 – What About Emergency Loans?
More people are starting businesses using the bootstrapping strategy. Instead of taking out a big business loan, they’re bartering products and services with other companies. They’re collaborating more, which vastly cuts back on the amount they’re spending.
For the things that do cost money they’re turning towards emergency loans. Emergency business loans are short-term loans with slightly higher interest rates. On the plus side, these lenders don’t even look at your credit history because they’re only lending small amounts of money at a time.
The folks over at emergency loans company Cashry said, “The biggest mistake entrepreneurs make is they don’t consider the repayments because these loans are so small and easy to obtain. You can cause a lot of damage if you don’t make the repayments.”
Think about what your needs are and whether an emergency loan is the ideal option for you.
Step 4 – What About a Guarantor?
Before personal credit scores took over, lenders used to use the guarantor system to give them peace of mind. Someone who wanted a loan would ask someone who knows them to act as a guarantor. If they failed to pay the money back the guarantor would become liable for that loan.
This requires a lot of trust, so you must take this seriously. Ask someone you know and introduce the subject gently. You may also want to sweeten the deal by offering to take them on as a partner in your business.
Final Thoughts – Improve Your Credit Score or Reduce Your Need for Money
You only have two options at your disposal. The best option is to improve your credit score. Work on getting that score up and you’ll have better lending choices.
On the other hand, you could decrease your monetary needs. Move from traditional loans to bootstrapping. Connect with other companies and start bartering for what you need. It takes more effort, but you’ll have fewer liabilities and you might make some important business relationships in the process.