How can a credit be considered as bad?

Bad credit depends on a lender’s point of view and based from a number of factors such as payment history, new credit, ratio of debt to credit limit, inquiries, derogatory items and others. Credit is one of the tools in key risk assessment that lenders use in determining whether a debtor is a good risk or a bad risk, based on their FICO score.

A Fico score below 680 is now considered as subprime in the credit market today. The three major credit bureaus records all your financial transaction and credit score with a bit of difference because there are some lenders who do not report to the three credit bureaus. Consumers must make sure to leverage their highest score that is recorded.

How can you leverage your highest credit score?

Good examples of leveraging credit score was when one of my business credit members was preparing to submit an application for a business loan and we have all suggested that he get his free annual credit report from the bureaus and determine his credit scores before submitting his application. His credit score on Equifax was 720, while the other two were 30 to 40 points lower. We asked his banker to check which credit bureau they got the score from and sure enough, they used the higher credit score to base the approval for his application. Leveraging his highest credit score allowed him to have to application for a loan approved.

Should my bad credit be fixed before I start looking for a loan?

If you are not able to fix your bad credit, you may have to pay a hefty price because the lenders that cater to applicants that are high risk usually charge a much higher rate of interest so that they can offset the risk they are getting into.

There are still other ways for anyone to get a small business loan even if they have a bad credit. They can still even do this without suffering from high credit interests lenders might give them. This is possible by minimizing the risk to the lender.

One way to make this possible is by posting sufficient collateral. This is more commonly known as a secured business loan and is based on assets. This is typically asset based and only means that hard assets are utilized like equipment, receivables, commercial real estate and in some cases, inventory.

How about a co-signer? What are the possible problems a co-signer can get himself into?

This is one of the most common solutions used when looking for business financing for people with bad credit. A co-signer that is creditworthy will be the one to act as the guarantor for the business loan. They can be a trading or business partner, subsidiary company or an investor with a strong credit score.

There are three major areas that could affect a co-signer:

A personal credit check will count as an inquiry

The obtained loan will show up on their credit reports which can cause an impact to their debit to credit limit ration and their credit score too.

They are also personally liable for the repayment of the debt. If the payment is not made on time and the loan goes into default, the co signer is then expected to pay the amount.

Are there still ways to get a business loan without having to deal with a bank?

There are still some other ways to get small business loans for those who have bad credits, and this is possible through lenders that are not related to any bank They can loan amounts from $5000 to $25000.

Bad Credit Business Loans

Filed under: Bad Credit

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