A business loan is generally required when an individual or a group of budding entrepreneurs intend to either start a business or expand the operations of their current business. These loans are not offered based on the person but on the credit score of the applicant.
If it is a new company, chances are that it will not have any credit history. However, if the applicant or the enterprise may have taken a loan previously, it is important to check if they hold a good or bad credit history.
Besides the two reasons for taking business loans, business owners may also find the need to apply for a loan when purchasing equipment for their organization, purchase of inventory, or increasing their working capital.
Sometimes, businesses also acquire smaller amounts of loans, repay them in a timely fashion just to ensure that they score good credit, and keep themselves away from the need for bad credit start-up business loans on guaranteed approval. Timely repayments of the taken amount will help the business improve its credit history and get guaranteed approval when they require bigger business loans.
Eligibility Criteria to Apply for A Business Loan
Business loans are offered to individuals or groups running a legal business and have a good turnover. While different banks and money lenders have various criteria to validate a person’s ability to repay back the loan amount in time, the general parameters universally taken into consideration are as follows:
- Type or nature of business, as in Private Limited, Public Limited, partnership or proprietorship.
- The profits or the overall turnover the business has (for existing businesses)
- Consistency of cash flow of the business
- History of the business and its track record since the establishment
How is the credit score determined?
A credit score is determined as good or bad based on several factors and the credit history of the individual. The below-mentioned factors are majorly considered:
- Repayment history: If you are entitled to loans in the past, your repayment history will play a key role in determining your current credit score. The lenders check on how regular or irregular you were in paying back your loan amount in time.
- Amounts on you: Credit card dues and high debts with a long-lasting tenure can certainly create a negative impact on your credit score. Therefore, try clearing all debts and dues before applying for a bigger business loan.
- Long credit history: Though it may sound surprising, the fact is that if you have a long credit history, chances are that you have a higher credit score.
- Credit mix history: Your drawing of different types of loans, like a car loan, property loan, personal loan etc., creates a credit mix history and impacts your credit score.
- Timely credit drawings: If you are taking out credits within a short span, be ready to face severe credit risks. This factor again causes a hurdle to your good credit score.
What details does the credit score report feature?
The credit score report is usually taken into consideration to determine the current financial status of your business or organization. It features details like:
- Your business registration number and tax details
- Complete the profile of your company with details like unique identity number, contact details, etc.
- Detailed history of the loans and credits you have been entitled to. These include current loans, default credits, total credit taken to date, etc.
- All other details of your loan like a guarantor, type of loan, security deposit etc.
How to choose which loan you need to acquire based on your current credit score?
Beginners in business finance must ask this question. The reason is that many young professionals are unaware of which type of loan best suits their business, depending upon the scale and nature of the business. Therefore, here are a few quick tips on what to consider:
- Requirement of the loan: Understanding where and how you are going to utilize the loan amount will help you make a smart decision in choosing the right loan. Take a strategic approach to make this decision.
- Associated rates and charges: While the loan amount is a bigger factor to consider, you also need to be sure of the interest rates and processing fees when choosing the right business loan. Thorough research or expert guidance is crucial here in making the smart move.
- Repayment tenure and associated charges: Most money lenders or banks impose repayment charges when you do not repay your amount in time. Considering your current business status and cash flow, choose a business loan that keeps it easy going for you.
Know some prominent types of business loans with bad credit
If you are a resident of the UK seeking business loans with bad credit (guaranteed approval), then you may try applying for either secured loans or unsecured loans.
· Secured loans
Secured loans are a type of loan where the business owner can deposit any asset like property or gold as a security with the bank or the money lender. This is generally the fastest way of securing a business loan with bad credit at good charges.
· Unsecured Loans
Unsecured loans are offered to businesses without the need for any security deposits. While most people fail to secure these loans with bad credit, it is still a possible option if you are ready to take up the loan amount at a high-interest rate.
Besides these options, you also have web-based lender loans. Web-based lenders are groups who offer immediate funding to small-scale business owners in need of a loan but who have a bad credit score. The process to obtain this loan amount is comparatively quicker and involves less paperwork.
With all this information in hand, also note that business funding requires intelligence and expertise. Therefore, consider seeking out experts when applying for a business start-up loan. Talk to them about your loan drawing history, bad credits, the mistakes you have done in terms of right financing in the past and the current needs of your business. They will certainly help you secure the right loan with low-interest rates.