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Take Credit When Keeping the Business Afloat

John McMalcolm

February 24, 2014

Although the U.S. economy is picking up, many small businesses are still struggling to recover from the impact of the recent recession.

Some business owners are having trouble keeping their businesses afloat, and they need to take out loans to meet their business needs. While major banks in the U.S. are showing greater willingness to offer loans to small business owners, those who have a bad credit score may continue to experience difficulty in securing a loan.

Here is a look at how small business owners with bad credit can increase their chances of getting their loan applications approved.

Apply for a Microloan

A microloan is a type of loan that is offered by non-profit organizations to provide financial assistance to women and minorities who wish to start a business, as well as businesses in economic empowerment zones. It allows entrepreneurs to obtain a loan of up to $50,000, and it has more lenient credit requirements. The Small Business Administration also has a microloan program, which provides loans through community-based non-profit intermediary lenders.

Get a Merchant Cash Advance

A merchant cash advance refers to a short-term loan that is given to businesses in exchange for a certain percentage of their future credit card sales. Providers of this kind of loan offer quick cash to business owners without requiring substantial collateral or good credit. Some of them are able to approve a loan and forward money within 48 hours. However, cash advance companies typically charge higher interest rates than traditional lenders. A merchant cash advance can be a great option for getting a car loan with bad credit while self-employed.

Open a Business Credit Card

A business credit card enables business owners with bad credit to obtain debt financing. Also known as credit-rebuilding credit card, it is one of the most effective ways to repair credit damage.

Get Incorporated

Incorporation can help entrepreneurs gain the trust of their lenders. Most lenders are more willing to offer loans to legally established businesses that have an established address and a good track record in paying bills.

How Businesses Can Improve Their Credit Scores

Check Credit Reports Regularly

Credit scores are calculated with a complicated mathematical equation that is specially designed to assess the probability of default. Some of the factors that can affect the credit scores of businesses are company size and structure, industry risk, credit history, credit utilization, payment habits, outstanding accounts payables, public records and others. Business owners should check their credit reports from time to time to make sure that all the information displayed is correct.

Pay Bills Promptly

It is essential for business owners to pay their bills on time, because late or missed payments can have a negative effect on their credit scores. They should also try to pre-pay bills whenever possible, because it may help them get discounts and credit references from their vendors.

Even though it is possible for small business owners to secure a loan with bad credit, they should make an effort to improve their credit scores.

A good credit rating can open up many financial possibilities.

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