Though you need dedication, passion and ideas to run a business, a business just can’t go on without money. It is not difficult to avail a business loan these days. The difficulty arises when you have a bad credit score.
It’s well known that availing a loan is tough, if you have a bad credit score. Banks hesitate to sanction loans to people with bad credit score and credit history. So, does this mean that you cannot avail a business loan with bad credit? Not at all, let’s find out how.
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It’s possible to get a business loan even if your credit score is bad. Following are the steps which help you improve your chances:
Reserve Bank of India (RBI) has authorized four credit bureaus to keep track of credit scores:
Get your credit report from one of them before approaching a bank for a loan.
Credit scores range from 300 to 900.
You should consider applying for a business loan with bad credit only if:
SEE ALSO: How To Get A Business Loan From A Bank?
1. Take a look at your credit score.
2. Make sure you have all necessary documents like bank statements, business documents such as ITR, certificate of registration, final statements like Profit & Loss A/c, Balance Sheet, clients and customers details and so on.
3. Be clear on the purpose of this loan. You will have to explain this to the banker. Be definite and specific about your business plans and goals.
See Also: Business Loans By Government
Now, it is time to approach lenders and explore the various options available to you:
1. Unsecured business loan: Banks grant personal loans to individuals with bad credit score. But be prepared to pay a high-interest rate as a compromise.
2. Business credit card: You might also consider applying for a business credit card. It works like a line of credit for small business owners. This is easier to get, compared to a loan. Again, business credit cards with bad credit score come with higher rates. Find Out Which Is Better: Business Loan or Business Credit Card
3. Collateralized business loan: You may also consider a collateralized business loan. Collateral is a security that you pledge with the bank to avail a loan. Not all assets are accepted by the lender as collateral for business loans. Banks accept demand deposit accounts, Treasury debt, certificates of deposit (CDs), stocks, and corporate bonds.
4. Try your current banker: Talk to your current banker with whom you have a friendly relationship. Do not hide your situation and speak freely. Banks could offer you a reasonable deal. You can also improve your bad credit history by repaying the loan on or before time.
5. Loan against Fixed Deposit: If you have a fixed deposit with your bank, they will offer a loan up to the fixed deposit amount maintained in the account. You can also get a credit card against fixed deposit called secured credit card. This will take care of your immediate cash requirements until you find another way.
Opportunities rarely knock at your door. So, be sure to make the best use of opportunities that come your way. Getting a loan with bad credit is not impossible and also not very easy. So, if you get one, be sure to make the best of it. Make repayments regularly and get back on track with a good credit score.
Be Wise, Get Rich.
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