4 Loan Options To Consider If You Have Bad Credit

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If you or your businesses have bad credit history then you know how challenging it is to get a loan even more so if you are a woman owning a business. A survey showed that only 30% of businesses owned by women received bank loans in the past six months. Having a bad credit score, defined by FICO as a score of 300 to 629, is one reason why small business loans get rejected by banks because borrowers with bad credit are considered a higher risk for defaulting on loans.

Generally, new small businesses face financing issues since they do not have track records that show increasing company revenue and profits. Women especially, many of whom have young businesses and have not established relationships with bank managers and staff, struggle to get approvals from national and regional banks and even credit unions and as a result require other source of funds aside from their personal savings, family and friends.

Alternative lenders offer loans for those with bad credit. A few require no minimum credit score however the majority have a 500 to 650 minimum credit score requirement. These companies tend to focus more on the strength of your company rather than your personal credit status and typically consider factors such as how long you’ve been in business, your annual revenue, whether you’re currently facing bankruptcy or have experienced recent ones. Here are some financing options available.

Secured loans

To avail of a secured loan means that the borrower must put up an asset or a property for collateral such as a car, motorcycle, truck, boat, home equity or more. This is an option for those who have credit scores below 600. There are companies that manage their business transactions fully online however services are not available in all 52 states.

Unsecured loans

Loans that do not require any type of collateral are categorized as unsecured loans, also called personal or signature loans. Loans are granted based on borrowers’ credit rating, income and existing debt. To offset risks due to poor credit scores, lenders may charge a higher interest. Unlike peer-to-peer loans, many lenders use their own lending format hence funds may be released as early as a day after application.

Peer-to-Peer loans

Some companies operate peer-to-peer lending which are loans from private lenders or investors and because it is reliant on individual investors to fund loans, release of funds can take up to two weeks. The interest is higher than what a bank would charge and many of them require a minimum credit score of 600 but you have a higher chance of loan approval compared to a bank loan application.

Payday loans

In desperate and very urgent situations, payday loans may seem the easiest solution however it is wise to avoid them because they involve ridiculous finance charges. These short-term, high-interest loans are typically small around $500 or less and only for a short period of time until repayment is made on your next payday. It is best to avoid payday loans and consider other alternatives if possible.

Whatever your financial situation is, take the time to carefully study your options, consult with financial experts and ask for recommendations from family and friends.