It doesn’t matter what your credit looks like when your business needs money. There’s a need that needs to be met and you often need to find a way to resolve the issue. However, business owners will find that it can be difficult to get approved for an affordable working capital loan with bad credit. At Capital Dude, we want to help so we’ve put together this short guide with five things you can do to improve your credit and your chances of getting the loan that you need.
Pay off some debt
The amount of debt you already have is often one of the largest factors in determining whether or not you will be approved for a loan. If the lender feels like you already have too much debt, they’re not going to approve your loan because they’re not confident that you have the income to pay off the other loans in addition to this new one. A metric that they’ll use to determine this is called your debt-to-income ratio. This is determined by adding up your monthly debt payments, then dividing that number by your monthly gross income. It’s ideal to keep this number below 26%.
Apply for a business credit card
It’s not uncommon to have large debts that you’re working toward paying off over a long period of time. This can include things like your mortgage, auto loans, and other expenses. You can improve your credit by paying each of these on time, but also by increasing your available credit limit. Holding a credit card that is used for small expenditures and is regularly paid off is a great way to improve your credit while demonstrating to a lender that you’re responsible with money.
Write out a plan for the loan
When you’re looking for additional funding for your business, a lender might want to know what you plan to do with the money. This will demonstrate that you’re going to be using the money for business expenses that can help grow your company rather than turn it into petty cash to take your employees on an all-inclusive retreat to the Caribbean. Show that you have a plan for growth and how you plan to use your revenue stream to pay it back.
Establish a line of credit
Similar to having a credit card, a line of credit will help to raise your available credit limit. In contrast to having a credit card, your line of credit is money that’s readily available as cash when you need it. You can dip into your line of credit when needed, then pay it off quickly or with scheduled payments. Responsibly using a line of credit will help to build your credit so you’re ready to apply for a working capital loan when you need it.
Find a cosigner
It can be difficult getting a small business loan if you’re a sole proprietor of a small business with bad credit. A lender might ask for you to find a cosigner to help. This isn’t unusual as someone with poor or unestablished credit is trying to buy a car, a home, or apply for a private student, they’re going to need a cosigner. This provides the lender with someone who can either vouch for the credibility of the primary person on the loan or take over repayment should they default.
Your significant other is often a good choice as they might have better credit, but their income could be reliant on the success of your business so a lender might not see them as a viable source to cosign on a loan. It’s best to speak with someone with whom you have a mutually trusting relationship with your finances to cosign for your loan.
Get in touch for more
If you’d like to learn more about how you can get a working capital loan with bad credit, reach out to Capital Dude today. We can help you get the funding that you need within 48 hours. Give us a call at 877-485-2779 or send a message using our contact form and we’ll talk about what we need to do to get you a working capital loan.
