Contract Loan Program: Qualifying with Bad Credit

A contract loan provides funds to a company or new venture that has an assigned government contract. Contract loans are available at state and national levels, but they are only available under certain, restricted requirements. Meeting these requirements is half of the issue; you will also have to prove you are creditworthy to secure the loan. If you have bad credit, there are some options to consider in order securing the loan.

Basic Requirements for a Contract Loan

First, you must meet the legal requirements for a contract loan. Depending on where you are applying, either in your state or nationally, these requirements will be slightly different. Some points are universal, though.

  • You must be a small business as defined by the Small Business Administration in order to be eligible for an SBA loan. This generally means you have less than 500 employees and less than $5M in yearly profits. If you exceed these limits, you can search for alternative funding methods, but you will not qualify for a small business contract loan.
  • You must have a business plan and a lender willing to work with you. Contract loans are not direct through the government; they actually come through private banks and are guaranteed by the government. More information on getting a lender to work with you will follow in the coming paragraphs.
  • You must be a legal resident of the United States and/or the state where you are applying.
  • You must have an assignable contract with the federal or state government.
  • You must be in good standing with the federal and state revenue service, meaning neither you nor your business owes any money in taxes. 

Credit Requirements for a Contract Loan

Proving you are creditworthy is the next step. If you have defaulted on a guaranteed loan in the past, you will not meet requirements regardless of other items on your application. General requirements include a good credit score, no prior defaults, no bankruptcies and a solid financial history. Having a positive asset to debt ratio is also important in order to secure the loan. If you are personally applying, you will need to meet these criteria yourself. If your business will appear on the loan application, your business credit score will have to meet these minimum requirements. 

Qualifying with Bad Credit

You will have to turn to bad credit business loans if you do not meet the credit requirements. Since the SBA will only guarantee loans for those who meet its standards, it will be hard to get the SBA to guarantee your loan. However, if you can find a bank willing to work with you, you may be able to convince the administration you are a viable business. To do this, pull on the resources available to you. This may mean collecting funds from investors to make your balance sheet more attractive. You can also consider putting down collateral on the loan, such as an asset your business currently owns. One creative way to overcome objections is to provide a statement of why your credit score is low. For example, if your business had one bad investment that caused credit to drop, you may be able to show you learned from this error and are in a better position today.