Obtaining business financing with low credit can be challenging, but it’s not impossible if the right steps are followed. The first plan of action is to learn what your credit score is and evaluate the components of it. Locating your credit score is not as difficult as it used to be since many credit card companies and websites now offer free access to your credit score and report. Knowing your credit background can help you make informed decisions about which financing options to pursue.
Exploring Alternative Lenders
Traditional lenders may be hesitant to work with low credit borrowers and usually prefer borrowers with a 700+ credit score. Alternative lenders often have more flexible qualifying parameters and may offer financing for credit scores down to 550 and under. Explore online lenders and non-institutional lending platforms, as they may consider factors beyond credit score, such as time in business, revenue, and experience.
Considering Collateral
Offering collateral can increase your chances of securing financing and if you have low credit or are pursuing certain types of loans, this may be a lender requirement. Not all low-credit lenders require collateral, but assets like equipment or real estate give most lenders security and reassurance that they can recoup their investment if you default on the financing. Consider what assets you have available to strengthen your loan application and be sure you are confident in your repayment ability, because lack of payment will put your collateral at risk.
Start Small and Build Relationships
Establish a small-dollar introductory lender relationship with a low-balance credit card or a credit builder loan, and repay that financing on-time and in full. This will demonstrate borrowing responsibility to the lender and help build your credit score, which may encourage the lender to lend you a larger dollar amount even if your credit is still low.
Conclusion
While securing financing with low credit is possible, it’s essential to work on improving your credit because financing terms for low-credit borrowers will almost always be at less than favorable terms. Take proactive steps such as paying bills on time, satisfying collections and judgments, reducing debt and high balances, and disputing any errors on your credit report. By demonstrating responsible financial behavior, you can steadily improve your credit score, making it easier to Borrow Confidently™ and access financing in the future.
Interested in accessing the best low credit business financing? Contact our recommended best low credit business lenders Headway Capital and BHG Financial.