Poor Credit? Business Loan Strategies for High-Risk Borrowers

Having poor credit may make it difficult to obtain a business credit loan. A business with a poor credit rating will find it difficult to engage lenders willing to make a loan or provide financing until the business becomes more established and clears its debts. This can be problematic for certain high-risk borrowers who need access to loans as a way to finance expansion or create new business opportunities.

Address Poor Credit Situation
There are few options available for high-risk borrowers. The best way for a business with a poor credit rating is to seek ways to consolidate their debt or reorganize the business in such a way to deal with their poor credit situation. Attempts such as these may demonstrate to a bank a willingness to deal with your financial situation. This could lead to a second chance loan or reconsideration of a prior loan application.

Second Chance Financing
You can approach a sub-prime or second chance lender as a way to obtain needed financing. These lenders will provide you with an opportunity to take out a loan and receive money. The concern for your business is the rate of interest that these lenders will charge you in order to obtain the loan. You can expect to pay double-digit interest rates for the opportunity to receive a loan through a second chance lender and the terms may not be as good as what may be available through a bank or traditional lender.

Use of Personal Assets

Some small businesses rely on personal credit cards, savings and other assets of the business owner as a way to meet capital needs. These sources of funds may provide a short-term solution for the business but should not be considered a long-term solution. Using personal credit cards or assets designated for a specific need such as retirement could be problematic in the future when you have a personal need for those funds, which are tied up in the business.

Personal Loans from Friends and Family
You may also consider asking for a personal loan from friends or colleagues who have the ability to fund your business enterprise. This can also be a good short-term way to address your financing needs but must be done with caution in order to prevent any irreparable harm being done to the relationship because of the loan.

Review your options carefully if you are considering a loan alternative for your business. Improving your credit is one way to avoid having to pay higher interest rates, use personal assets or borrow from friend and family. It may be unavoidable however in some circumstances, especially when a need for financing is great and needs to be met today.