Small business loans play a crucial role in helping entrepreneurs get their new ventures off the ground. They also help established smaller companies modernize, grow, and diversify.
Unless your small business has access to private investors or your own substantial personal savings, a small business loan is the most realistic path forward. When you work with a reputable and trustworthy lender, you can count on receiving funding after your loan application is approved.
The approval process can be a major issue for small-business owners, however. If you don’t have a particularly good credit history, you might be worried about eligibility — and the potential to have a loan application denied.
The good news is that there are options available, even when your personal credit isn’t excellent.
How hard is it to get a small business loan with so-so or poor credit? It can take more time and effort than would be the case with an exceptional credit history, but it’s by no means impossible. Let’s take a closer look.
How to Get a Small Business Loan Without a Great Credit History
Understanding Credit Scores and Credit History for Business Loans
A personal credit score is a three-digit number that falls in the range between 300 (the lowest credit score) and 900 (the maximum credit score). This number is essentially a condensed version of an individual’s credit history.
Lenders use your score, and therefore your credit history, as one of many factors in determining loan eligibility. A credit score over 680 is a solid score, something 620 and above is average, and anything below that is subpar.
Wondering how to get approved for a small business loan if your credit score falls into one of the lower bands? There are plenty of avenues to consider, including:
The Overall Strength of Your Business Plan and Operational Results
Your credit score can work against you when applying for a business loan, but there are plenty of other factors that come into play as well. If your business has proven results in terms of profits and cash flow, it can help overcome a low credit score.
A strong business plan, including plenty of detail and a clear strategy, can help convince lenders that your company can succeed. It demonstrates your understanding of not only what will make your business successful from an operational perspective but also from a financial perspective. It also reveals your expertise and insight into the markets, who your customers are, your competition and how you win with your existing business project. Other supporting documentation required often includes proof of business incorporation, business finance data, proof of insurance, and more.
If you’re wondering how to get a startup small business loan, effective documentation is especially important. You can’t point to consistent profits or good customer volume, so strategy becomes even more crucial.
If you want to get a loan to buy a small business, financial and operational information is similarly crucial. In this case, you can point to the business’s existing success as a point in your favor. This is supported by historical financial statements and year-to-date financial information.
Improving Your Personal Credit Score
If your business doesn’t need funding right now, it may be best to work to improve your credit score before going through the application process for a business loan.
The Government of Canada offers broadly relevant advice for boosting credit scores. You can limit the amount of available credit you use, prioritize your monthly payments, and keep older accounts open.
All these actions can have a positive impact on your credit score. That can ultimately make it easier to meet approval criteria and receive a small business loan.
Find a Guarantor or Apply for a Secured Business Loan
If you’re having trouble figuring out how to get a loan for your small business, a guarantor and providing tangible assets for security will help.
A guarantor will promise to pay the loan if you and your business can’t. This is a major request to make to a friend or family member, but it can be appropriate in some circumstances.
A secured loan involves pledging specific assets to cover the loan if you can’t pay it back directly. Providing tangible security to the lender can ease, although not eliminate, the eligibility requirements for some lenders.
Work with a Helpful and Understanding Lender
Not every business will qualify for a business loan program or other lending options. However, working with a good lender may help your business find an option that’s a good fit for its current situation.
If you choose to partner with us, you can count on working with experienced loan advisors who treat you as an individual instead of just another application. We can point you toward the right choice for financing your business. Along the way, you’ll receive helpful advice that supports smarter financial and business decisions.