Have you had bad credit and need to secure financing for your business? Struggling to overcome bankruptcy due to circumstances out of your control? Don’t worry. Traditional banks may not be the most appropriate outlet for your situation. Online lenders could provide a solution for you to overcome your past challenges.
Borrowers are using online lending solutions more than ever to secure the financing they need for their business. At rates, they can manage. Let’s talk about some fundamental methods to overcome low credit scores or a past bankruptcy.
Cash
One way that you can meet a lender’s concerns is to have cash on hand. Show that you can save some money and prove to your lender that you can wisely manage your money and take your business seriously. If you aren’t smart with your own money, then why would a lender expect you to be responsible with theirs? A good baseline for cash on hand would be 20% of the amount you are requesting. Often, this cash may be tied up in your business, so let’s look at an alternative to having the cash flow available.
Collateral
Having a good equity position in a marketable collateral piece will be another factor that a lender will give credence to. Most often, this is going to be your home or your vehicle. By securing your business loan with one of these two assets, you might guarantee a lower rate than you would with an unsecured loan. This equity position will show your lender that you can manage your money and give them a fall back in the event of default.
Character
One of the critical pieces of lending is evaluating a borrower’s character. Understanding this can be challenging to do if you do not know your lender personally. Online lenders prove to be a valuable resource for overcoming this challenge more than with a local bank. Since they deal with borrowers, they do not know, and they are familiar with evaluating potential borrowers’ character. One way you can help them is to provide letters from character references. They may not know you directly, but it will confirm that someone is willing to put their time and effort to support your cause.
Financials
Know your financials! It is one of the most critical aspects of obtaining a business loan despite bad credit scores. Have a minimum of three years of tax returns, business and personal, ready for your lender. They want to see a current personal financial statement, balance sheet, and profit & loss statement.
Be able to communicate the information contained in the documents clearly to your lender. Show them that you know your business inside and out. Be transparent about the source of your bankruptcy or bad credit score and demonstrate why it was not ignorance of the financials. The lender will ask you questions about your business’ cash flow and how you plan to repay your loan. Know the answers to these questions and be prepared to discuss them in-depth!
If you require a business loan and bad credit or bankruptcy hurt your chances, focusing on these four key areas will improve your odds of securing financing at the best market rates. Don’t be discouraged if traditional banking institutions have turned you down. Online lenders are better at evaluating non-traditional credit histories and negotiating the circumstances of a past bankruptcy or poor credit performance. Evaluate all your options, and don’t let your past determine your future!