get a small loan with bad credit

get a small loan with bad credit

How to Get a Small Business Loan With Bad Credit & No Collateral

Having bad credit and no collateral doesn't eliminate the possibility of a loan.

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In order to secure a small business loan, most lenders will need you to prove your ability to repay the funds by providing information such as credit history, equity investment, collateral and business management experience. However, if you have bad credit but still want financial assistance to establish your business, you can achieve your dreams by being creative. There are lenders willing to provide the funds even when you have bad credit and no collateral.

Devise a comprehensive business plan that projects a positive cash flow. If the business looks viable and runs on an excellent idea, more people will be willing to lend you money. In addition, take steps aimed at improving your credit worthiness to increase the chances of getting a loan. Request your credit report and check it for accuracy. Use it as a basis to systematically eliminate factors that are driving your score down, such as hard inquiries, late payments and credit usage.

Peer-to-peer financing, also known as peer-to-peer investing or P2P lending, involves individuals rather than financial institutions providing unsecured business loans to borrowers. To apply, access the website of a lending company that pairs you with potential lenders. The transaction takes place online via peer-to-peer lending companies' platforms that ascertain your authenticity. The interest rates for loans are set either by the lenders or the company that facilitates the transactions, based on the credit rating of the borrower.

If you have a good business plan and the business idea has a high growth potential, you may be able to attract a partner with good credit who can apply to the bank for a loan to start or boost the small business. Your partner is the cosigner and, depending on how you agree to service the loan, both of you are partially responsible for the loan repayment. Discuss the modalities of running the business with your partner -- whether they expect to be actively involved in the business or they trust you to operate it.

You may decide to approach relatives and friends that have the ability to lend you money for starting or expanding your business. If necessary, explain to them that your credit standing is not adequate for consideration by conventional lenders and that you do not have any form of collateral. Chances are they will understand your predicament and be willing to help. Be prepared to compromise – they may want to own part of the venture or be involved in the management of the business. Make a decision that is best for the viability of the business plan, and ensure that your business will generate ample cash flow to repay as per agreed terms to avoid upsetting the relationship.

While not technically a business loan, many people get the financing they need for a new business idea using crowdsourcing websites like KickStarter, IndieGoGo and GoFundMe. This may be ideal if your business is creating a new product and needs money to fund production and distribution costs, or if your business is centered around an idea people can get excited about, like an independent film. If people like your idea, they will give you the funding in exchange for the product when it is finished or other perks, like t-shirts. If you are producing a physical object, you generally need to have a completed prototype to use these websites.

5 Ways to Get a Small loan With Bad Credit

Are you stressed up because you think you cannot borrow any loan since you had the wind knocked out of your credit scores as a result of financial problems? There is no need to worry any more as here is your help finally. People with a bad financial records with their banks or who are really struggling to build credit for the first time normally face it rough when it comes to wooing bankers to give them money. That seems to be very hard but trust me you have more options than you can even imagine. I will give you the 5 ways to get a small loan with bad credit.

1. Use a Home Equity Line of Credit

As it is a fact that housing bubble has left many homeowners owing more than the homes themselves are worth, it is still possible to get a loan using this perspective if you have equity in your property. This way, you can get a tax-deductible, low-interest credit line that you can use in any way you think it is worth to be used. If you have a reliable income, this method is one of the best since there is no struggling much on making those in power to give you the money but if you are not sure of the source of income you have, you might risk losing the property as the bank can confiscate it to cover for the debt.

2. You can consider applying to credit unions

These institutions are similar to banks only that they are owned by their members who actually have something in common. These people could be working in the same industry or even they live in the same geographical area. Unions are known to be nonprofit organizations whose main aim is to elevate the living standards of its members by offering them loans at very strict lenient rules governing the lend out. They lend more money to customers even with a very bad credit history since what they deal in is the salaries in the case of salaried union members. Using this method can be a wise way of getting some amount of money even with a bad credit.

Personal Loans For People With Bad Credit Or No Credit

Bad credit or no credit makes it tough – but not impossible – to get a loan. Credit unions, home equity and peer-to-peer loans or even debt consolidation with no loan could improve your credit rating and increase your future options.

Personal Loans For People With Bad Credit Or No Credit

You may have seen it on a sign somewhere or possibly on your TV or computer screen: “No credit, no problem!” Don’t believe it. The truth is, when you need to get a personal loan and you have no credit or bad credit, there definitely is a problem. It’s not an insurmountable one, but it is a problem nonetheless.

Having poor credit makes you a high-risk customer to major banks, credit unions and other major lending institutions. Those lenders have strict standards, and they rely on credit scores when picking their borrowers and calculating loan terms. Unless lenders are assured that their loans will be repaid, they simply won’t make the loan. In addition, heightened regulations and tighter internal controls by lenders in the wake of the Great Recession make today’s lending climate a tough one for borrowers.

So when your credit is bad, you may feel like you’re at the mercy of payday lenders and other sources of financial help, sources that will only loan you money if you agree to repay it at high, or “subprime,” interest rates. These loans are fool’s gold. They often you leave more in debt than you should be. In fact, payday loans are illegal in 13 states because of their predatory terms.

To understand how your credit affects your personal loan options, the best place to start is to understand your credit score. Free credit scores are now available at several online sites.

The National Foundation for Credit Counseling says that 60% of Americans haven’t checked their score in more than a year.

Some common signs of a bad credit score include:

  • You are paying higher interest rates than you see advertised
  • You have stopped trying to pay down debt and are satisfied making minimum payments on high interest credit cards
  • You have a history of late payments for housing, utilities or other monthly bills
  • Your checking account is overdrawn on a regular basis
  • You have problems getting a lease for housing
  • Cell phone companies won’t give you a contract

All of these have a negative effect on your credit score, making it more difficult to get a loan. Don’t get sucked into a situation that sounds too good to be true. If you have bad credit and need a loan there are options available but it will take a little time and research to find the one best suited to you.

Credit unions are similar to commercial banks in terms of their services, but they are owned by their members rather than by profit-seeking shareholders. Credit unions are nonprofit institutions, meaning they pass their earnings along to their members in the form of lower fees and borrowing costs and better customer service.

A credit union – especially one affiliated with your employer or one that is community-based – may be willing to look beyond a poor credit history and make a judgment about whether it will loan you money based on your character and your promise to repay, regardless of if you have bad credit or not. Think of them in the way you would a small community bank from years ago.

Although the recent recession forced a number of smaller credit unions around the country to merge with larger ones, almost all credit unions are actively looking for borrowers. If you can afford terms that match your credit history, you are likely to find a credit union somewhere willing to work with you.

If you are thinking of asking a credit union for a personal loan, look for one with which you have something in common. For example, if you are a veteran of the armed forces, you might want to approach the Navy Federal Credit Union. If you are a teacher, there are credit unions created by and for members of that profession.

By joining a credit union, you could position yourself for much more favorable loan terms, regardless of your credit score.

The Navy Federal Credit Union caps its personal-loan annual percentage rate (APR) for members at 18% — and that holds true even if your credit score is 600 or less.

In the same credit situation, a bad-credit borrower might receive a 36% APR from another lender.

Let’s say you have a three-year, $10,000 loan. Here is the total repayment:

The chance to save more than $3,000 makes it worth looking into enrolling in a credit union.

In Shakespeare’s “Hamlet,” the character Polonius admonishes his son Laertes to be “neither a borrower, nor a lender.” While this advice is prudent when dealing with strangers, it might be even more judicious if you’re thinking about borrowing from family members or friends. Not repaying a loan to a relative or close associate can poison relationships in ways that go far beyond a bad credit report.

Nevertheless, sometimes those closest to you are your best sources of funds and a family loan can benefit everyone involved. You should always treat any loan from someone you know just as if it were an important business transaction between you and a stranger. That means it should be formalized with clear documentation and legally recorded. To avoid future problems, create a written contract that includes the loan terms and interest rate, and what will happen if you cannot repay the debt.

If borrowing from a friend or relative is not possible, you can still approach someone with good credit who trusts your capacity to repay the loan and you can ask him or her to be a co-signer on a personal loan from a traditional lender. With a qualified co-signer, the lender will set the loan terms based on the credit score of the person with good credit, who will then be equally responsible for repayment. All payment information will be recorded on both yours and your co-signer’s credit reports, so if you default on the loan, or you’re late with payments, you will severely damage your co-signer’s credit score. However, if you make timely payments, your own score will improve, making it easier to obtain future loans without a co-signer.

If you have equity in your home, you can apply for a home equity loan or home equity line of credit (HELOC). Home equity is the difference between the amount your home can be sold for and your mortgage. Your home is used as collateral, and home equity loans can be obtained regardless of your credit score. The interest rate is usually low, because the loan is secured by the home. Also, the interest you pay on a home equity loan is usually tax-deductible.

Unlike a home equity loan, which is a lump sum of cash, a HELOC acts like any other credit account. You can access money when you need to, up to the loan’s credit limit, and you must pay it back according to a predetermined schedule. In both cases, it is important to remember that tapping your home equity puts your property in jeopardy if you don’t repay the debt. But if you are disciplined and have a reliable source of income, it is an inexpensive way to borrow from a reputable lender if you have bad credit.

One of the benefits of a home equity loan or HELOC is the extended loan term (15 or 30 years). The long term will substantially lower your payment, though you will pay more in interest over that time period.

Peer-to-peer lending, also known as person-to-person lending, is a relatively new loan form, having only been around since 2005. It’s an online platform that allows you to borrow directly from another individual rather than from an institution. Potential borrowers can post a loan listing on various peer-to-peer websites, indicating the amount wanted and what it’s for. Investors review the loan listings and choose the ones they wish to fund.

Your credit score is still a factor, but since an individual investor has much greater leeway in how it is to be weighed these loans are often more readily available for people with bad credit. Lending standards are significantly more lenient and interest rates are usually lower than those offered by traditional lenders. In addition, peer-to-peer websites help evaluate risk for the lender, while verifying the lender’s credentials for the borrower.

Can You Get A Small Business Loan With Bad Credit?

I'm not going to lie to you. Trying to get a small business loan with bad credit can be difficult.

Speaking from an ex-commercial banking point of view, a credit report is basically an introduction or a first impression of the person in general. If the credit report is clean, it sort of sets the tone with the commercial banker.

Sort of like getting your foot in the door and getting past the first stage. However, if the credit report is bad, than you probably have some explaining to do.

It all depends on how bad your credit report is. If you're showing a slightly overdue payment on one of your visa's, it shouldn't be a big deal but if you have 2 or 3 collections showing, it's gonna take some time and patience to deal with the banker.

She could say come back when you have your credit cleaned up or she might decide to hear you out. It all depends on your relationship with the bank.

However, I'm not trying to discourage you from trying to get a loan. On the contrary, I want to give you a heads up as to what to expect when you apply for a small business loan with questionable or bad credit.

If you are interested in getting a small business loan, the first thing you must do is get familiar with your credit history. If you don't know what your credit history looks like, how are you supposed to explain what's on the report to your lending institution? You need to know exactly what's on the credit report and account for every detail, well ahead of time .

If there are some details that you don't recognize or there are some mistakes on the credit report, it's best to catch them before you apply for a loan. Once you know what's on the credit report, you'll have a better idea of your current status.

When you apply for a loan, there are basically 3 credit bureaus who collect your credit information. They are Equifax, TransUnion and Experian. All three of these companies operate basically the same.

They collect credit information from banks and other lending institutions on all of your borrowing habits. From this information, they basically assign you a В“scoreВ”. These scores range from good to bad.

Once you get your credit report, it may seem a little confusing, however It's not as confusing as it looks. There are certain sections you need to pay particular attention to. The main sections you need to look at are:

В• Public Records/Other Information

В• Trade Information

The first section you need to look at is the personal information or identification. Make sure they have this right. Some of the information might be incorrect and might affect your small business loan application. The second section you need to look at is the Inquiries.

The inquiries section tells the banker where you've previously applied for a loan. If she sees 15 different inquiries in the last 2 months, she's going to start wondering how come you've been to 15 different companies and why you've been denied.

The third part of the credit report you need to be concerned about is the public records and other information section. This will outline any secured loans and collection information you have. If you see a collections on your report, make sure it's accurate.

It's important to note that if there are any amounts owing in your collection, a lending institution will almost certainly close your file. That is, if the file is 3 years old and you didn't bother to pay any of the money back from a collection, a lending institution simply won't take your file seriously.

The only way the banker or lending institution will keep looking at your file is if you have a plausible explanation ready. This is why it's so important to have a look at your credit report before you apply. Once you know what's in the public records section, you can get an explanation ready for the lender.

The fourth section you need to look at is the trade information. The trade information will have all of your credit information. That is, everything that you've borrowed in the past 7 years will show up here.

These are broken down into R's and I's.The credit scores range from R1 to R9's and I1's to I9's. Ones being the best and nines being the worst. Make sure that this information is correct because it is the most important aspect of your credit report.

Lenders will take a close look at your repayment history and look for anything over an R1 or I1. Lenders will also look at any previous highs in terms of your late payments.

If you see an R9, it means you were sent to collections. Is the credit report the sole determining factor in applying for a small business loan? No, it's not. Like I said before, it's like a first impression for the lending institution.

Alright, you have your credit report and your getting ready to apply for a loan and everything looks ok but you have an R9 showing up.

This is not the end. Remember, when you go for a small business loan, the lending institution will look at the credit history as well as your collateral and the business plan. In this case, collateral will include all of your equity possessions. That is, the stuff you own including cash and assets.

They will also look in detail at your business plan .

If you have a plausible explanation for the R9 and you own certain assets and are using some cash equity to bargain with, the bank might see the benefit of lending you a certain amount of cash. Also remember that if you are asking for a small amount, you might be better off applying for a personal line of credit.

This way, you don't have to go through the hassle of the commercial loan process. The commercial loan process is a lengthy one. I'd always recommend you go through a personal line of credit first - It's more flexible

However, when you are applying for a small business loan and you don't have a dime to your name, bad credit and no collateral, a bank or lending institution won't touch you. I know, it's tough but it's the truth. There is no incentive for a bank or lending institution to go forward when they have no confidence in your business.

So it's important that you give them the confidence they're looking for. Get to know your commercial banker. Get to know the bank manager. Find out what they're looking for and meet their requirements.

Have the banker or lending institution give you a list of what they need. Once you get the list and provide them what their looking for, they will have no choice but to go forward.

This might mean that you have to go back to the drawing board to save up some cash and to clean up your credit but in the long run, it will be worth it.

Believe me, its possible but you need to have three things in place:

1) Credit Report - Make sure you know what's in the report and everything's accurate. If it's clean and you don't have any R9's, you should be ok. If you have an R9, you will have to get your story straight before you visit the banker or lending institution.

Also, lenders are big on seeing you take the initiative. If they see you are paying the collection back in full, they might look favourable on it.

2) Collateral - You need assets to leverage additional debt. In other words, you need to own certain assets that are worth some money. This can be cash or physical assets such as property, vehicles and buildings (home)

3) Comprehensive business plan - A bank will simply not look at you if you don't have a business plan. Make sure it's a good plan!

Remember to be consistent and don't give up so easily. If you hang in there, the lending institution will eventually come around.

How to Get a Small Business Loan with Bad Credit

Most small to mid-sized start-up businesses typically require extra capital within the first few years of being operational. That being said this situation isn’t unique to any specific kind of business; it’s something that happens to almost all new companies, whether it’s to help with temporary cash flow issues, expansion or to hire additional employees. It is also something that all business owners need to account for, make plans for and figure out a way to correct.

Unfortunately, if you as a business owner haven’t had time to establish your companies’ independent credit history or your own personal credit history isn’t quite as high as you’d like it to be, you might find it difficult to get the loan or funding you need to improve and grow your business. In cases like this, being approved for the business loan you need and want can be more difficult than you originally thought it would be. This is why it’s extremely important that you are prepared to face your potential lender and have a solid understanding of what you need from them. Here are a few steps you should consider to help get the business loan you need when your credit is less than stellar.

Sit down and re-evaluate your business’s finances. What are your current financial needs? What do you want to do with the loan? How do you plan on paying it back? And finally, ask yourself if your plan can be accomplished without a loan or with a smaller loan? For business owners with bad credit, more often than not their major concern is that they will be rejected for the financing they need to grow their company. This is, of course, a valid concern as lenders typically want to lend to individuals or companies that have good credit. If after you’ve re-evaluated your situation and still feel as though you need a loan, make an appointment with a potential lender. Discuss with them your current credit situation and ask about alternative options and smaller loans.

Step 2: Get Help from the Government

The Government of Canada has been helping small businesses for years get the funding they need. The Canada Small Business Financing Program shares some of the risk the lender takes on when they provide loans to small businesses. Less risk makes it possible for a lender to approve more loans for small Canadian businesses. This program allows:

  • Start-ups to get the funding they need to open their doors.
  • More established businesses to expand and make improvements and upgrades.
  • Small businesses to have access to loans they wouldn’t otherwise have access to.
  • Create new jobs in Canada and stimulate economic growth.

Check out the Government of Canada’s website for information on The Canada Small Business Financing Program.

If you’re having trouble getting approved for a business loan because of your poor credit you might want to consider a secured loan. A secured loan requires you to put up some type of collateral, typically this can be an asset that your currently own. It’s important that you discuss with your potential lender what type of collateral they can accept and the risks associated with securing a loan. Secured loans are great because they can allow you to get the financing you need but just remember that if you default on your loan you could have your asset seized.

Step 4: Look into Merchant Cash Advances

Consider looking into a merchant cash advance. If you only need a few thousand dollars due to cash flow issues then this could be a great option for you. A merchant cash advance lender will provide you with a sum of money in exchange for a percentage of your daily credit card or debit card transactions. Your lender will continue to take this percentage until you’ve fully repaid them.

Step 5: Look For an Alternative Lender

If you’ve applied for a business loan from banks and more traditional lending institutions and you’ve been rejected you might want to consider an alternative lender. Private lenders tend to be more lenient and often don’t even check potential borrowers credit histories or scores. There are countless private lenders out there who want to help you get the funding you need and who are willing to work with you instead of against you. Do some research and you should be able to find a great lender who can forge a professional relationship with.

One of the most important things you can do is to not give up, even if you have bad credit. There are an abundance of other financing options out there for you and your business so don’t panic if banks and other more traditional financial institutions won’t lend you the money you need.

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