Understanding adverse credit history and its impact on your loan
In spite of a bad credit score, there are ways to build your business with loans. We discuss various options.
A bad credit score is not necessarily the worst to happen to your business. Understand that there are ways to amend your credit score as time progresses. In fact, as a business owner you need to determine what your credit score is. You can do this by getting your personal credit report from a lender. Do not assume that because your business loan application was rejected, your business has a bad credit score. There are many reasons that a lender may have rejected your loan application, which have nothing to do with your credit score. Once your credit rating is established, know that there are funding options for bad credit risks. Whether you need a small business loan or a line of credit we talk you though the various options available to you in spite of a bad credit score.
- Understand bad credit score
First, understand the bad credit score with an open mind. Does the business have a bad credit score or does the owner have bad credit? In case it is the business that has a bad credit score, as a business owner you can borrow from the bank or a non banking financial institution in your name and fund the business. For this to work the business needs to be a separate entity from the business owner. In case the business is financially an extension of the owner, the credit scores will be related, which may pose a problem. In case your business is new, a well-formulated business plan may get you the business loan you need to grow your business.
- Borrow against existing inventory or deposits or against collateral
As a business you probably maintain inventory. You can borrow against the existing inventory and repay from the increase in sales. The other option is to borrow against previous profits that may be stored as deposits in the bank. In both these options, the business uses its own assets to raise more capital to grow. Additionally as the business repays the debt on time the credit score improves. Taking a business loan against assets or collateral is another option in case of a bad credit score.
- Friends and family
The next best option is to look for friends and family who believe in your business, who can advance a loan to you irrespective of your credit score with an assurance that the money will be repaid within the stipulated period of time. This option comes with its own risks so make sure that you draft an agreement to protect yourself and your business.
- Credit Card
In spite of a bad credit score it is possible to get a business credit card. This can be used for immediate cash requirements to purchase essential inventory. Keep in mind though that the interest here will be higher when the entire amount is not paid in the next bill cycle. Further, a good credit card repayment history will help to better your credit score as well.
- Short-term business loans
Taking small loans from banks or non banking financial institutions and repaying them on time or before time is a great way to walk back into a good credit score as well as enabling the business to have some excess capital to fund growth.
A bad credit score can cause a slump in your business; however, there are easy options to ensure your business has access to capital when it is required. Find out about Bajaj Finserv’s business loan option and see if it is the right way to infuse your business with funds. The added advantage of a business loan from Bajaj Finserv is that you only have to pay interest on the amount of loan being used by your business rather than the whole amount, thus putting less stress on your repayment. Find out more here: