Wednesday, 01 April 2015 17:10

Everything you need to know before you get that loan

Good Business, Bad Credit? Wait to Ask for a Loan By Karen E. Klein | Source:

Question: I have owned a small business for three years now and I’d like to grow the company. But I have bad personal credit. Is there any financial help for me out there and if so how do I go about getting it? I am a woman-owned business.

Answer: There are options available, including nonbank lending, microfinance, and soliciting investment capital from friends or loyal customers. But the best answer may be one you don’t want to hear: Keep working on your business, improve your personal credit score, and think about expanding in a year or two, when you’ll be in a much stronger position.

Granted, lending terms right now are attractive: Small Business Administration-backed loans are available at interest rates below 6 percent, and last year the SBA waived its fees on loans under $150,000. But with poor personal credit, you’re unlikely to qualify for one of these traditional bank loans, even if your business is chugging along profitably. That’s because banks typically want a personal guaranteeand substantial collateral from small business borrowers.

“Many small business owners struggle to get loans when their personal credit dips. Most banks simply won’t spend time unless someone has a very high credit score, as well as checking many other boxes,” says Sam Hodges, managing director of Funding Circle, one of the peer-to-peer lenders that cropped up as bank lending to small business tightened.

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