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There are many things you need when starting a business, but without money, it’s an impossible feat. For many, it can feel like a chicken/egg scenario, especially if your credit has seen better days.
Personal credit scores range from 300 to 850, with a score under 600 considered poor. Business credit scores range from 1 to 100. A score over 75 is excellent. If you do not have established business credit, lenders look at your personal credit.
Credit scores are affected by the amount of available credit you or your business has on bank lines of credit and credit cards, the length of time you or your business has had a credit profile, and the number of inquiries made on credit profiles.
Related Article: Building Your SBSS Score: Steps to Improving Your Business Credit
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Ready to apply for a loan and worried about your score?
“The first step must be to review a credit report and determine exactly how bad is your credit,” advises Attorney Scott Florin, founder of Florin Legal, P.A. in Tampa, Florida. “There are free resources available online to review a credit report which is the first evidence a lender will review. Many negative entries can be resolved quickly and creditors may be willing to delete the trade line as part of the payment.”
Florin points to a recent study by the FTC that found as many as 25% of consumers have credit report errors. “Due to inaccurate credit reports,” he says, “many small business owners might reasonably be denied credit through no fault of their own.”
More Options Than You Think
Even if your credit score cannot be elevated during a report review, there are still a lot of options for business owners.
“The good news for entrepreneurs with bad credit is that you have more options than you may think,” says Gerri Detweiler, Head of Market Education at nav.com. “When it comes to personal credit, if you have bad credit, you're going to have a difficult time getting a loan unless you get a cosigner or find a friend or family member who will help you out. But when it comes to small business financing, there are options that don't require good credit.”
Detweiler explains that microlenders will often look beyond the credit score to help launch or grow small businesses that are promising. “If your business has adequate sales that can be documented through credit card sales, invoices et cetera,” she adds, “you may be able to get financing based on the money you're expected to bring in in the future.”
Big Banks Versus Alternative Lenders
Because big banks approve fewer than one in four business loan applications, an alternative lender like LoanMe is a good option for those with bad credit.
Even those applications that are approved by traditional lenders come with a higher interest rate and more collateral. Be certain to know the interest rate you’ll be charged for any loan, and check to see if an alternative lender offers better terms. If your credit score is above 600, you have a much better chance, with about an 80% approval rate.
Alternative lenders are interested in your annual revenue, profitability, current debt and cash flow. Here are items that are frequently considered for alternative funding:
- FICO 500+
- Active bank account
- Trend lines in credit
- Minimum monthly bank deposits of $5,000
- For profit business
When applying for loans, be mindful of your timing. Try to do all applications at once. Spacing out applications can more likely hurt your credit. As you work to get your score back on track, the savvy approach is to closely compare interest rates to fund your business.
Alternative lenders report to credit agencies, so your improving credit will start opening more doors as your business grows. Get started with an application today — same day approvals are possible with LoanMe.