A business loan is often necessary to get a business started or to keep it running. If the business owner has bad credit, and the business itself is not established enough to have its own credit history, then applying for a loan will be difficult. There are some options available to business owners to help them overcome this obstacle, and we'll help you navigate around the problem in the steps below.
Separate your personal expenses from your business expenses. The key to establishing the business's borrowing ability is to establish the business as its own credit user. If you have bad credit, making the separation between personal and business credit is essential.
Establish your business's credit score. To do this, apply for a tax ID number for the business. This will provide a separate legal entity for the establishment, which means that you can keep your Social Security Number completely separate from your business. Since your Social Security Number is what attracts the poor credit rating and the difficulties in getting a loan, it may become easier to borrow for the business.
Work to get small lines of credit for the business's credit score. Vendor and supplier small lines of credit are a good place to start. Use the business's tax ID number to establish these loans. Work to pay them on time and develop a good credit history.
Secure short term loans for any situation in which you need funds available quickly, but be sure to pay them off on time. These cash advance type of loans are available through various lenders to businesses with bad credit, but are very costly.
Use equity in equipment, property ownership, or other assets to get equity loans. These are secured loans, based on the value of your assets. Defaulting on these loans will mean the lender will take the property from you, though, which could cause your business to close its doors. Use caution in going down this path.
Tips & Warnings
- Be patient. You can make it all happen with your business loan.
- Don't make business financial decisions impulsively. Think things through.
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