Your company is doing well. Sales are coming in. Production is in progress. Clients are calling. And you’re going to keep growing. You need a business loan to keep growing. But it’s in the back of your mind: you’ve got a low credit score. Try as you might to not think about it, when you go to apply for a loan, it’s going to be one of the first things that most lending companies will notice. But you need your money. So, what do you do? How do you get a loan with a bad credit score?
Tips to Get a Loan With a Bad Credit score?
It’s time to make a plan and stick with your plan. If your business is going strong, that’s a good sign to every lender out there. You’ll be ready to apply for a business loan in no time! But what about that credit score? Is bad credit a death sentence? Not exactly. Actually, roughly 30% of american’s have a credit score that is considered challenged.
Good News! You can definitely still get a loan with a bad credit score! But wait.. “what does the term ‘challenged credit’ exactly mean?”
Here is the breakdown of how credit scores are often graded:
Very Poor: 300-499
Challenged credit would be considered a credit score that falls within in the poor or lower range.
Don’t know your score? That’s no problem. There are many website like Credit Karma that you can check your score for free! You can also check your score out at any of the three main credit bureaus: Experian, Trans Union, and Equifax.
Now, not all of the credit score checking services through the bureaus is free, but some user report information from the credit bureaus is more accurate than third party sites like Credit Karma.
Prior to applying for any loans or financing, the best step someone with challenged credit can take would be to get familiar with what is on their credit profile.
Your Score Can Be Improved
Again, a low score isn’t a death sentence. Your FICO can be improved with some work!
There are five main factors that make up your credit score, as follows:
Payment History: 35%
Amount Owed: 30%
Length of Credit History: 15%
New Credit: 10%
Credit Mix: 10%
The easiest way to improve your FICO score is to pay down as many debts or credit card bills you can. The amount you owe/your credit utilization can drop a good score fast! The best way to combat the drop and bring your numbers up is to chip away at the amount you owe before applying. Another way to make your score go up is waiting for any pesky inquiries to fall of your report.
Leading us to our next point: Be careful! There are many ways to actually damage your credit while shopping for a loan.
How? Well, there’s one phrase you need to get familiar with: hard inquiry.
What’s a hard inquiry? In in simple terms, it’s how lending sources and business see everything that is on your credit profile. Basically, this is how lending sources decide your terms and whether or not you are approved.
Once a hard inquiry is pulled, it serves as ding that shows on your credit report for 2 years, showing that you were shopping around for a loan.
A few of these won’t hurt you, but multiple hard inquiries can do solid damage. You can go from shopping to get a loan with a bad credit score to shopping to get a loan with a worse credit score.
Over-Shopping Can Hurt You
Many people looking for a loan don’t realize how bad shopping around with bad credit can be. It is VERY important that you preserve your score as much as you can prior to approval. This means not letting dealers, lenders, and banks ding your FICO with hard inquiries. How do you do that?
The simple answer is to use caution when applying for a loan.
Let’s say you go to a dealer and they offer you financing. Often times, that dealer will send your information out to many banks they have worked with in the past in attempts to see who can approve you. These banks will most likely look into your credit with a hard inquiry. Did you know one hard inquiry can drop your score by 5 – 10 points at a time? Now multiply that by the 10 banks and lenders that dealer sent your information to. Ouch.
Do Your Research
Avoiding those lasting inquiries is why it’s so important to use caution and do your research before applying.
It is a fact that a legitimate bank, lending company, or broker will require a hard inquiry before sending you your funds (unless maybe they plan on using your home or possessions as equity). It’s just the process of applying for financing, a credit card, or a mortgage.
But we can all agree that one hard inquiry is better than 10, right?
Because you are starting with challenged credit, there is a chance you won’t be too excited about some of terms returned by banks and lenders who might be asking for down payments and rates you are not comfortable with paying. There are other banks that might not approve you at all.
And all those hard inquiries?
In the end, they only hurt you without providing the loan you wanted!
Defend yourself by knowing who you’re applying with before you enter your social. Get an outline what programs they can possibly offer. Do they even do loans for challenged credit?
How To Shop Without The Drop (in score):
Don’t fret! There are a few ways around damaging hard inquiries when trying to get a loan with a bad credit score. One way to avoid the ding is to use companies that offer a soft credit pull to determine your terms. This, just like checking your score on CreditKarma, does not have an impact but allows one to see what is contained in your credit profile.
We here at TopMark, (yes, a shameless plug) offer risk free, 90 day approvals that do not damage or ding your credit with hard inquiries. You’re able to decide if you like your terms before the contract is finalized. Don’t like our rates? That’s fine! You can walk away with no impact or harm to your credit.
Like our rates? Great! We’ll draft up some documents for you. You won’t get that hard inquiry until after you are 100% committed to our terms, and are ready to get that loan!
Honesty is the Best Policy
Lying about your bad credit score won’t help your loan approval odds. Truthfully, lying to your lending source might actually hurt your chances. If you have bad credit, you have bad credit. The lending company is going to find out about it one way or another. They’re going to find out fairly easily.
Be honest from the start. Tell your lender why you have the credit score you have, what you’re doing differently now, and your plan for building a better score.
Ask your lender if there are any steps that you can take to make your application stronger. In some cases, there might be nothing else for you to do but wait to see if you can get approved, but others might want to see documents or statements to prove that you’re telling the truth about your story and why your credit has been damaged.
Don’t Give Up
If you’ve gotten several rejections so far on your credit journey, don’t think that it can never happen. If you haven’t tried alternative types of lenders that are more forgiving, then your journey isn’t over. Many companies have less stringent policies than others, and are willing to partner with you. You might have to apply for a smaller loan at first, but you’ll still be able to get your loan.
TopMark Funding has affordable business loans tailor made for you. At a 90% approval rate, we understand if you had a blip in your credit industry. And we want you to get back on your feet again. But how will that ever happen if no one gives you a chance? TopMark Funding will, and you’ll have a business loan in as quickly as 24 hours.