It can be very difficult for a woman to get a small business loan with bad credit. If your personal credit history is littered with collections, judgements and payments that are 30, 60 or 90 days past due, it will be an uphill battle to obtain a loan. To do so, you will need to concentrate on the two of the "three C's." Your credit is already bad, but if you have the capacity and collateral, you will have a better chance of obtaining your small business loan.
Research banks to find one that is suitable for your needs. There are banks that will help a woman obtain a small business loan even with bad credit. Be cautious, however, as they may charge you inordinately high interest rates and large fees to cover their potential future losses. Try to find financial institutions with special financing for women and minority-owned businesses. They tend to have different criteria to help women and minorities obtain small business loans by relaxing loan-to-value and debt-to-income ratios.
Write a detailed explanation of your credit history. Credit reports only show what you have paid on time and what you haven't. They do not list the circumstances that led to your problems. If your bad credit is from a time when medical issues put you out of work, that is more forgivable than simply overspending and not paying your bills.
Demonstrate the capacity to repay the loan. Your credit may have been shoddy on a personal level, but if your business is doing well and you can show that you provide adequate debt service coverage, you have a good chance at getting approved. A good debt-service coverage ratio is usually around 1.20:1. This means that you take in one dollar and twenty cents in income for every one dollar in expenses. The higher the ratio, the better your outlook.
Give the bank adequate collateral. The more liquid the collateral (i.e., the more easily converted to cash), the better. If you can secure the loan with cash, a certificate of deposit or funds in a savings account, the bank may not even run a credit check. However, cash-secured loans are rare, so you will likely offer real estate, business assets or equipment. There are different standards for loan-to-value ratio, depending on the type of collateral. For example, a vehicle, unlike a house, depreciates in value each year. Therefore, the bank may only lend up to 60 or 70 percent of its value, whereas they may go to 80 percent for a home.