There is good news and bad news when you're looking for bad credit small business loans. The bad news is that your bad credit will probably prevent you from getting an immediate loan. You're not alone; even businesses with good credit often have trouble getting small business loans these days. The good news is that you can take actions that will help you get a loan sooner rather than much later.
Separate Your Assets
Begin by separating your personal credit from your business credit. First you will have to form a corporation or limited liability company for your business. Both corporations and LLCs will help protect your assets, a benefit that sole proprietorships and partnerships do not offer.
Next, apply for an Employer Identification Number, also called a Federal Tax Identification Number, under your corporate or limited liability company name.
Stop commingling personal and business assets. You will need separate bank accounts, checking accounts and credit cards for your personal transactions and your business transactions.
This will allow you to start building credit for your business without having your personal credit cloud the picture. The goal is to slowly build up your business credit while cleaning up your personal credit at the same time.
Keep in mind that suppliers may not give you a line of credit at all for awhile. They may require you to pay cash in advance or COD for a period of time so that you can establish a working relationship.
Although this is not a quick fix to your credit problems, it is probably the healthiest way to go.
Unsecured Cash Advances
Some businesses offer unsecured cash advances to small companies with bad credit by paying cash advances based on credit card sales or total sales. Payments that are not fixed will rise and fall, based on monthly sales volumes. Typically speaking, requests for cash advances are almost always approved and approved in a timely manner. You may get your cash advance a few days after you apply.
Use caution when considering these lines of credit. Some come with serious strings attached, such as high interest rates or fees. Most companies will automatically take the money from your credit card sales. That could be a problem if you have a sudden need for capital to cover payroll or supply chain expenses, since you won't be able to rely on revenue from credit card sales.
You can, of course, approach family and friends for loans. You may also reset your personal budget and cut out frills to increase your cash flow until your situation improves. Another option is to use any credit cards that you may have, keeping in mind that the purpose of using the cards is to not only finance your business, but to repair your credit rating.
Many business owners apply for loans or lines of credit without any thought to their own personal credit histories. They mistakenly believe the loans made to their businesses will have no impact on their personal credit and that they cannot be personally liable for the business loan.
The simple fact is that when you want to start a small business, you will almost always be needing a business loan. Even if you have the initial capital needed to start the business, it is necessary to then have quite a bit of money on top of that secured to cover the expenses for at least the first year of that business (since many small businesses take many months before they finally start to become profitable).