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As you might already know, a bank will often go through the credit history of the business as well as personal credit history of the small business owner before they grant them a loan. If your business credit is in good standing, you can still see applications denied because of your bad personal credit.
So, if your personal credit score is lower than 650, this article will give you a few pointers that will help you secure a small business loan despite your bad or mediocre personal credit. That being said, you should also know that you will invariably pay higher interest rates even if you secure a business loan using some of the information mentioned below.
Subprime lenders - These lenders are a lot more lenient in the loan application process with the downside being that they will charge very high interest rates on the loans, often between 12% and 17%. Though it might still be a feasible option for a cash strapped small business, it does not really provide a rosy situation in the long run.
Transfer of ownership - In some cases, business owners have a partnership in a business where the other partner might have an excellent credit history. If the partner is willing, you can transfer the ownership to his name to have better chances of getting a loan approved. You can then transfer the ownership back in your name after the loan has been approved. It is completely legal, but many lenders will include clauses in a loan prohibiting the transaction so know what the loan documents dictate.
Secured business loan - As the name suggests, you can try obtaining a business loan with collateral which will greatly increase your credit worthiness in the eyes of the bank. The bank will see reduced risk in granting you a loan if it is able to see that you can attach property or other assets as collateral.
Cosigner - This is also known as a guaranty. If you have friends, family or business partner who can cosign for you, your loan will stand a much better chance of being approved. Of course, the cosigner must have a very good financial background and credit score.
Local business - Unlike large nationwide chains, small banks will often have a much different perspective when it comes to financing a local business. If you have had a bank account at a local bank, it might still be the best place to approach for a small business loan. Even in this day and age, personal relationships still matter.
In conclusion, all is not lost if you have been denied by many banks. You can use one of the methods above to try again and secure that business loan that you really need.
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