How To Get Business Credit Or Loan With Bad Credit History
What are the banks and funding sources looking for to approve a business loan with past bad credit problems by the owners?
There are many types of banking and funding options for businesses with bad credit or owners that have past bad credit problems.
The first thing to determine is do you really need a loan? What is the direct use of the funds? What will be your true return on investment or cost of funds?
With this information then you can easily determine if the cost of the funds for the loan will truly be a money making event. Funding-Banking-Commerical Finance sources are as interested as you are in making sure you will make money with the loan. It reduces the risk they have in loaning you the money in the first place.
For example if you are borrowing $10,000 to finance some equipment or inventory that will bring you a return at least double what your loan payback schedule is than you are at least looking at this from the right perspective.
Remember if the $10,000 loan generates $30,000 in revenue (not profits) but costs you $20,000 year in cost of funds then you only have $10,000 a year in cash flow to pay for labor, overhead, taxes and have something left for you called net profits.
But if the $10,000 loan generates $30,000 a year and the payback of the $10,000 loan is over three years and is still double you cost of funds then you have $90,000 in revenue (3 years of $30,000) and cost of funds of $20,000 over the same three year time frame equally $70,000 in gross profits after cost of funds. Then deduct your labor, taxes, overhead etc…
This is simply called time value of money or return on cash (not return on investment). This is the best way to determine if you can pay the cost of funds that a high risk, bad credit, commercial loan will require.
Here the best way to remember the philosophy. Sometimes the cost of capital is not as important as the access to capitalIf it helps you get to a better credit situation and better rates in the future.
Ok, so If you can afford or better yet can’t afford to not acquire the capital to generate more profits, but have a past personal bad credit problem. How do you fix this? What are the steps to get the funds to grow your business?
You must first understand what the funding sources are looking for to give you the loan.
a. Keep your business bank separate of your personal at all costs even if you are not incorporated.
b. Keep your revenues (not profits) above at least $8,000 per month at more like $10-$20,000 a month
c. Keep your balance carried over at least 20% of your monthly revenues. Its hard to run a business on 20% gross profit and less than $10,000 in sales a month and still pay your self, taxes, and prove you can repay the loan
d. Don’t change banks commercially stay with one however bad they are till such a time you don’t need a loan. This will also help you in the future when you bad credit is fixed and your business is in good shape to get a low interest loan from the bank.
a. Pay off if you can any liens
b. Employee a reputable credit repair company to LEGALLY remove any trade lines that can be removed
c. Get two unsecured trade lines that report to all three credit bureaus and pay for them on time.
d. Don’t get past due on any trade line you currently have but most importantly not on your vehicles and or home
e. Don’t talk to anyone about a loan till your BK has been charged off.
f. If you can keep from it don’t BK at all. Funding sources know if you BK’d once you’ll probably do it again in the future. They would like to see you work through and out of the problem instead of bankruptcy
In summary, if you have bad credit but need a business loan just follow a few simple tips:
Click on this link complete and application for a business loan with bad credit
Go to this link for more information
Business Loans With Bad Credit