Small Business Loans for Persons with Poor Credit

Receiving approval for any type of loan when you have poor credit can be very difficult, especially if you're trying to obtain financing for a small business. Many studies have shown that a large percentage of small businesses will either fail or become bankrupt within five years of founding their business. Unfortunately, many small business failures are due to the lack of adequate financing for crucial investments and business upkeep. In fact, a lot of small business owners don't even attempt to apply for a small business loan because they have poor personal credit, and are therefore missing out on important opportunities to advance their business to the next level. Luckily, there are small business loans for persons with poor credit, and the following paragraph will teach you how to find them, how to compare them, and how to apply for them and increase your chances of approval.

Finding Small Business Loans for Persons with Poor Credit
Although approximately 80% of small business loan applications submitted by individuals with poor credit are denied, by utilizing the right resources and being diligent you can be amongst the 20% of small-business owners with poor credit that are approved for financing. The first step in finding small business loans for persons with poor credit is to find a lender that specializes in dealing with subprime borrowers. Some lenders may be willing to accept some form of collateral (i.e. – property or title loans) to mitigate the risk of loan default when lending to persons with poor credit. It should be noted that many small business loans for persons with poor credit carry seemingly unfair terms and conditions, and are subject to exuberant penalty interest rates in the event of late payments.

Comparing Small Business Loans for Persons with Poor Credit
Once you've found several lenders that specialize in offering small business loans to individuals with bad credit, you should begin comparing loans by examining interest rates, fees, and terms and conditions that govern penalties. Perhaps the most important aspect of small-business loans for persons with poor credit is the amount that needs to be repaid each month, as this amount will have a substantial impact on whether the business owner is able to make repayments and avoid debt. Ideally, your small business loan payments should be no more than 30% of your gross monthly income. It is important to calculate whether the loan repayments will exceed this 30% limitation if the penalty interest rate is applied, and if so the necessary precautions must be taken to ensure that payments are made on time to avoid penalty interest rates.

Applying for Small Business Loans for Persons with Poor Credit
There are several ways to improve your chances of obtaining approval for small business loans for persons with poor credit. First, you can attempt to separate your business credit score from your personal credit score by forming an LLC (Limited Liability Corporation) and applying for an EIN (Employee Identification Number). Once you've obtained an EIN you can use this similar to a Social Security number to open bank/credit accounts and establish a business credit profile that is entirely separate from your personal credit. Once you've built your business credit score up a bit you can bring financial documentation to prospective lenders to improve your chances of obtaining approval for small business loans for persons with poor credit. If you're unable to be approved for a small business loan, you may want to consider utilizing trade credit instead, which can be used to purchase products/services that are crucial to the sustenance and advancement of your business.