Facing Bad Credit? Know how to get a business loan even in bad credit
Before moving to the topic, let’s have a glance of credit score and what is bad rating prescribed by the FICO. This will help you to examine your score in a smooth manner and the steps provided here will help you to get a business loan in an effective manner. So, let’s begin with a credit score.
Credit Score is an important tool used by the bank to judge whom to offer the loan or not. Well, it’s upon you as the credit score depends upon several factors such as repayment on time, capital, repayment capacity, Debt to income ratio and much more. So, if you maintain these factors properly then you can achieve a good credit score. Basically, as per the FICO norms, there are few categories of the credit score and the same are listed below.
What are the types of Credit Score?
Exceptional: Well, this is really hard to get as you will have to strictly abide by the repayment modules on time and your status of the business should be in the outstanding condition. As per the FICO, the score for exceptional category lies in the range of 800-850.
Very Good: This category is next to the exceptional and the score range lies in between 740-799.
Good: The score range for the good category in the credit score is 670-739.
Fair: The score for the fair credit score lies in the range of 580-669.
Poor: This is the last segment of the credit score and the range for the same lies in 300-579.
Now, you are well aware of the categories of the credit score and its time to know about the types of bad credit score. This will enable you to judge where you lie and the same will support you to get the business loan in an efficient manner.
What are the types of Bad Credit Business Loan?
Short-term Loan: As the name suggests the short term, it means the loan is offered by the lender for short duration and they will charge more interest rate against the loan. In this process, the borrower can lend the lump sum amount and repay the same with the base amount including some interest rate.
Collateral Loan: Collateral is a medium which secures the lenders against the loan amount. In collateral loan, the borrower takes the loan against the security such as assets and if fail to repay the loan amount, then the lender will have the right to seize the property to recover its loan amount. This is also termed as a secured business loan.
Merchant Cash: Well, the name itself symbolizes that the interest rate against the loan amount will be high and, in this process, the borrower can take the lump sum amount from the lender against the debit card. But the interest rate in Merchant cash is a bit higher and repayment tenure may be longer.
Now you have gone through the types of bad credit hdfc business loan and have grasped enough knowledge, So it’s time to implement the same in the positive aspect and need to crack the door to get the business loan even in the bad credit and for the same, you will have to improve your credit score. Well, you don’t need to worry more as here some basic elements are listed below which will help you to improve the credit score.
What are the effective ways to improve the bad credit score?
Collateral – As stated earlier, collateral secures the lender and offer them the power to seize the assets if the borrower fails to repay the loan. However, if you have sufficient collateral, then you will need to build it and for the same, you have two options, i.e. Invoice Financing and Equipment Financing. The former denotes the pending invoice of the customers and if you retain the same, then you may have the possibility to get the loan as some of the lenders approve the loan on the basis of customers invoice. In the latter part, the equipment serves as the collateral and you will get the loan against the equipment value. However, if you fail to repay the amount then the lender will seize the equipment.
Guarantees/Co-Signer: If you have a good bond with a person who has a good credit score and is ready to become a guarantor for your loan, then you can get the business loan in an easy manner. In this case, the guarantor plays an active role and if you fail to repay the loan, then the responsibility will lie in the shoulder of the Co-Signer.
These were the effective measure to improve the credit score and after knowing the same you must move to the next step, i.e. major factors to be considered applying for the business loan and for your convenience few of them are listed below which will help you to get the business loan in an efficient manner.
What are the key factors to contemplate amid applying for a business loan in bad credit score?
1. The relation between the credit score and the interest rate –
It is quite obvious that the person who has good credit score receive the loan amount in a minimum interest rate and who have bad credit score will get the loan at a high-interest rate. However, if you have a bad credit score then it is a good option to repair your score after taking the loan at a higher interest rate. Doesn’t focus on the higher interest rate; just grab this opportunity to build your credit score by paying the repayment amount on time.
2. Business Age:-
The lenders always want to get secured and for the same offer the loan even to the person who has a bad credit score on the basis of business age. If the business is well established and the credit score of an individual is poor, then also lender offer the loan just in the hope that they will get the repayment amount back. But the same case is not applicable for new business as the lender won’t trust the business.
3. Business Status:-
If you are getting a good return from the business, then the lenders will offer you the business loan in the line of bad credit score and will consider only the profitability of the business.
So, these were the possible ways to get the business loan in the bad credit score and if you are facing the same situation and need the loan, then execute the steps mentioned above and this will help you to get the loan in an effective manner.