If you have bad credit you may also currently be struggling with many aspects of your finances. However, this does not mean that you may still not need to take out more credit for some important and even potentially-life changing financial endeavours. One such example of a new life direction you may be taking that will require some additional credit – is if you are starting a new business venture.
While this can be a good opportunity for you to improve your finances in the future, you will however need to find credit right now to fund a new business so you can get your new business up and running. This situation can however be quite the conundrum, especially if you can not get the loan you need from a bank.
If this is the predicament you are finding yourself in, knowing that there are some alternative lenders, as well as how to approach these lenders will be important information for you. Additionally, if you are able to obtain a business loan from a bank, there may be some methods you can take that can make your chances of getting that bank loan more realistic.
How to Approach Finding a Loan if you have Bad Credit:
Approach #1: A Home Equity Loan
If you are a home owner, knowing the current value of your home can be important information even if you are not planning on selling it. With a decent amount of equity in your home, you could use this as an opportunity to take out a home equity loan that can be used to fund your business. While you do need to be aware that this does mean you are putting your home in jeopardy in the event you can’t repay your debts – however in many cases it can be a good method of getting your business off the ground.
As an added bonus, you can also start to improve your credit. With reliable income coming in, you can pay down your loan with consistency and this will start to reflect more positively on your credit report. This may also be a way of avoiding interest rates that are through the roof – also having a line of credit that is tax-deductible.
Approach #2: Apply to a Credit Union
Next, if you can not get a loan the traditional bank route, then a credit union may be able to help make your business loans more obtainable. While credit unions typically offer more competitive rates, and have less fees overall, they also tend to support the start-up dreams of many small business owners. While banks still outrank credit unions in terms of the number of locations in your area, – in Ontario, for example there are currently at least 500 credit unions to choose from.
Obviously, there will be certain criteria for which credit unions you can join. For example, credit unions exist for certain professional organizations, religious groups, and many credit unions also can be joined based on the area you live in.
Approach: #3: Take a Loan from a Family Member or a Friend
A third approach to funding your new business, if your credit score isn’t strong enough to secure a bank loan is to ask for a loan from a friend or a family member. If you have a strong business idea and a plan, then you may be able to borrow funds from someone you trust and who trusts you. In many cases, a family member or friend may be more willing to support your business goals and more likely to look beyond just the numbers of your credit score. Moreover, they may be more able to see all aspects of your situation, such as your drive, your commitment and other personal qualities that can make for a successful business outcome.
Ultimately, as a result of their personally connection to you, your dreams may also be their dreams and they will go the extra mile to help you realize them. That being said, it is ideal that you still treat this loan like any other formal loan and draw up a ‘legal’ agreement, with set terms, including repayment and interest fees.
Approach #4: Use a Co-signer
A familial loan may not be the only method of securing funds for your new start-up. You can could go that route to obtain a loan from a bank or another lender by appealing to a co-signer. A friend or a family member may also be able to act as your co-signer and if their credit is currently stronger than yours than this may help with your business loan chances. To the bank, this will make you look like a more reliable borrower – as even if you can not repay the loan, then your co-signer will be in the position to pay it back. Either way, the lender has a means of receiving payment – one way or another.
Of course, you will want to understand what is it you and your co-signer are getting themselves into. Your co-signer will want to understand that in the event the business does not do well – or payments are made late, and so on – this will impact their credit history as well as your own. Therefore, the two of you are basically in it together and this should help provide you with even more motivation to make the most of your new business. Again, with a sound idea and a strategic business model – your co-signer has the opportunity to also be instrumental in the success of your new business.
So all in all, you can examine which of these loan options may be the best for your situation – and maybe there are more than one that appeal to you right now. Then you can be on your way to seeking out the loan you need, despite being in a bad credit situation.
If a traditional bank loan is not going to pan out – and a co-signer is not an option for you – be aware that there are alternative sources of funding your new business that do not require setting foot in these financial settings. Credit Unions or even a loan from a family member or friend may be the best method of securing the income you need to get your business dreams out of your head and into the real-world.