How To Take Out Startup Business Loans With Bad Credit
Are you considering getting a loan to cover your startup costs, but you are not sure whether you qualify for one because your credit score is bad? Read our article to find out whether you can get startup business loans with bad credit and which options are the best. DoNotPay can also help you draft a convincing loan request letter and increase your chances of getting approved by any lender.
A credit score (or rating) is a number that represents an individual’s creditworthiness. The lenders take a credit score into consideration when deciding whether they should give a small business loan to a person or not. A credit score can be:
- Poor (300–579)
- Fair (580–669)
- Good (670–739)
- Very good (740–799)
- Excellent (800–850)
An average credit rating in the U.S. is 710. The score is impacted by various factors from a borrower’s credit report, such as total debt, number of late payments, account age, etc.
While you can get a startup business loan with bad credit, your options will be limited. You most likely will not qualify for government or bank loans as they require a borrower to have a good credit score and be in business for a certain number of years. For example, the U.S. Small Business Administration (SBA) requires a credit score of at least 690.
If you have bad credit, you might be able to get the following types of loans:
- Microloans—Microlenders give capital to individuals with disadvantages, such as business owners that belong to minorities. Keep in mind that microlenders usually borrow $50,000 or less, which makes these loans perfect for covering some basic expenses
- Community Development Financial Institution (CDFI) loans—CDFI receives funding to assist underserved communities. If you need a loan for your startup, you might be able to get one from CDFI, but note that you will have to wait some time to receive funding
- Business lines of credit (LOC)—LOC loans allow you to get a fixed amount of capital and pay it back either in multiple installments or in a single payment. To qualify for one, you need to be in the business for at least six months and have $25,000 in annual revenue
- Merchant cash advances—This type of loan allows you to borrow money and repay it daily or weekly with a percentage of your sales
Getting a small business loan with bad credit will require you to:
- Determine which lenders will give you a loan
- Create an organized business plan
- Get collateral
- Turn in the required paperwork that the lenders will use to determine whether you are eligible for the loan or not
Among the papers you need to file is a loan request letter that needs to be flawless if you want to make sure you get the loan. Need help creating one? Use DoNotPay! We will draw up this crucial document for you in no time and help you by providing a list of the necessary paperwork.
If you want to go through the small business loan application process as smoothly as possible and get your business up and running in no time, subscribe to DoNotPay! We will generate a tailor-made and convincing loan request letter you can use to apply for a loan.
All you have to do is:
- Prepare all the required documents
- Answer our chatbot’s questions
- Upload your paperwork
Not sure which lender to choose or don’t know where to find one? Use DoNotPay’s integrated Find Online Business Loan Lender tool to find out what your best options are.
DoNotPay has prepared some tips to help you improve your credit score and increase your chances of getting loans from banks and other lenders with strict terms and conditions. Consult the table below for details:
|Pay your bills on time||Make sure you pay your bills in a timely manner. In case you are late with a payment, contact your creditors immediately to ease the negative effect of missing a deadline|
|Pay off maxed out cards first||If you have multiple credit cards, pay them off one by one, starting with the ones closest to the limit|
|Watch out for credit utilization rate||Credit utilization makes up 30% of your score. For example, if you have a credit limit of $10,000, you should never use more than $3,000|
Keep in mind that it usually takes at least three to six months to see any noticeable change in your credit score.
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