It is typically difficult, but not impossible, to secure business loans with bad credit. To make this task easier, an individual can work to establish a separate credit history for his business. He might also use collateral to make himself a more attractive loan candidate or even seek the help of a cosigner. Short-term loans, family-and-friend loans, and peer-to-peer lending situations may also prove optimal for people who need business loans with bad credit.
If an individual needs a business loan but has bad credit, he may do well to take steps to establish credit for his business. If he can separate the business’ credit score from his personal credit score, he may have a better chance of convincing a lender to provide the funding he needs. He can establish credit for his business by obtaining a business tax ID number to use for business-related purchases rather than his personal tax ID number. He can then secure small credit lines with which to purchase business supplies and services, and attach his business tax ID number to these accounts. By paying these bills on time, an individual can build a good credit history and use that to secure a business loan.
Collateral also makes it easier to secure business loans with bad credit. When a person has significant collateral to pledge, a lender may be more willing to provide a loan since there is less risk involved. In the event that the party with bad credit defaults on his business loan, the lending institution can seize the collateral and sell it to recoup the money it has lost. The willingness of the lender to grant a loan under such circumstances usually depends on the value of the collateral and the ease with which the lender would be able to seize it.
Sometimes people who successfully obtain business loans with bad credit do so with cosigners. A cosigner is someone who guarantees a loan for another party. In the event that the borrower fails to pay the loan as agreed, the cosigner becomes responsible for repayment. To have the best chance of securing a loan in this way, a person usually has to select a cosigner with very good credit and significant income or financial resources.
If a potential borrower finds it difficult to secure a business loan through traditional sources, he might consider alternative types of lending situations. For example, he could try asking family members and friends to loan the money he needs for his business. He might also try to secure a loan through a peer-to-peer lending network. These networks connect borrowers to peer lenders who are often less strict than lending institutions. As a last resort, a person could consider a short-term loan, such as a cash advance, but these types of loans often have very high interest rates.