How to Get an SBA Loan With Bad Credit

Even business owners with poor credit can get SBA loans.

The Small Business Association (SBA) is a federal government agency that provides support and financing for small businesses. Loans made by the agency come in several varieties, from disaster relief to start-up loans. Ideally, the organization prefers to lend to business owners with clean credit histories. However, there are pools of SBA money out there in 2010 for business owners with spotty, even poor, credit.

Things You'll Need

• Completed loan application
• Cash reserves
• Business plan
• Articles of Incorporation

Instructions

1. Write a strong business plan. Most SBA lenders require this, especially for applicants with poor credit. A strong business plan consists of a marketing system, financial records, expansion plan (if applicable) and list of assets. If you have bad credit, your plan should include letters of explanation regarding derogatory accounts.

2. Incorporate your business. If you haven't formed a corporation, do so by contacting the Internal Revenue Service or a Limited Liability Company (LLC) agent. Complete the forms necessary to form your official business. Most SBA lenders prefer to examine your articles of incorporation as part of the loan underwriting process.

3. Examine your assets and business cash flow. Many SBA loan programs for owners with poor credit come with the requirement that the business generates positive cash and has sufficient liquid assets. Having $200,000 to $500,000 in positive cash flow, or the potential to, is a common requirement. Make sure your financial records are accurate.

4. Contact the SBA for a list of loan programs. Explain your credit problems thoroughly. An agent will provide you with a list of programs and lenders with access to financing.

5. Complete an SBA loan application. After you find a lender to help you, meet with a loan officer and complete an application. Make sure you have your financials and business plan handy. They will be needed as part of your loan application.

Tips & Warnings

• Only work with a lender experienced in writing SBA loans.

• Do not allow multiple lenders to view your credit report. Multiple inquiries can negatively affect your credit score.

References

• Merchant Advisors
• IRS.gov: Limited Liability Company (LLC)

Resources

• S.C.O.R.E.: Business Plan for a Startup Business
• SBA: Guaranteed Loan Programs