Businesses often require a financial investment to help get them up and running. But before a bank can grant you a loan it will review your credit. A good credit score is ideal, but not always the case. Here's what you need to know if you're worried about how bad credit will impact your ability to get a business loan.
Getting a business loan with bad credit
When applying for a loan or credit card, your lender will use your credit score to assess the risk in lending you money. For small businesses, a lender may look at your personal credit score and your business's credit score. If your loan is for a new business, you won't have a business credit score, so your lender will use your personal credit score. If you have a low credit score, your application for a business loan might be declined. Rather than risking having an application denied - as any declined applications for credit will negatively impact your credit score - take the time to improve your score before you apply. You can do this by:
Repaying any outstanding debts you have, including any personal or previous business debts. Stop applying for credit, including any personal credit cards or personal loans.
Understanding your credit score
Your credit score helps financial institutions assess the risk involved in lending you money. It's numerical figure, ranging from zero to 1200, that accounts for your history of borrowing and repaying loans. Avoid surprises with your credit score by heading over to Get My Score. It takes less than 60 seconds to sign up. This way you'll know exactly what to expect when you start applying for business loans.
Improve your score before choosing the right loan
Before you can apply for a loan you need to improve your credit score. Sort out your debts and stop applying for other loans and credit cards. While you wait for your score to improve, take some time to familiarise yourself with how business loans work. By now you should have already put together a business plan, where you will have mapped out the expected profits and expenses of your business. You can use our InfoChoice Business Calculator to help you estimate how much this will cost. This will give you an idea of how much you need to borrow and how long it will take you to pay it off.
Now that you've improved your credit score
It's time to choose a business loan. If you're unsure about how to choose the business loan that's right for you, use our InfoChoice comparison table to see the latest business loans for you to consider. Once you've made your choice, applying is easy. The green 'Go to site' button will take you directly to the lender's website, so you can apply online. Applications usually take less than 10 minutes to complete. If you're still unsure about how business loans work, here is a list of key business loan terms to familiarise yourself with.
