Securing financing for a contractor business can be a challenging task, specifically when the credit score is below 600, which is considered ‘bad’ by many lending institutions. A good credit score is shaped by the financial history of an applicant (business or personal) including the types of loans, repayments, defaults or missed payments, and other activities. Almost all lenders take your credit score as a parameter to evaluate the risk of giving funds to you. Establishing a credit history is important for contractors seeking to validate reliability to lenders. In case, if you do not have a good credit history, you can look for several financing options even with bad credit from online lenders.
Is It Possible To Get A Loan With Bad Credit?
Of course, a low credit score might be considered an impossible roadblock for contractors, restricting access to traditional loans that eventually affect your business’s growth. But, due to advancements in the lending landscape, it has become easier for contractors to secure a good financing option despite having bad credit. When we think of bad credit, it does not mean that there are no options for financing.
Lenders have started looking beyond just credit scores, assessing business performance, revenue, and cash flow. There are alternative financing options available for contractors with bad credit including secured loans, unsecured loans, equipment financing, asset-based loans (secured loans), and revenue-based financing can help contractors unlock capital even if they have less credit history than usual. Bad credit contractor loans are available for both new and existing contractors.
Understanding The Eligibility Criteria For Contractor Loans With Bad Credit
Are you eligible for a contractor business loan even with bad credit? Securing a financing solution for a contractor business with a poor credit history is possible with the right approach and preparation. Rather than credit scores, lenders assess other factors to determine the overall financial health of a business. Having a well-planned strategy can let you boost the approval chances and unlock the financing your contractor business needs to thrive. You must know the eligibility criteria for a bad credit contractor/business loan, which are as follows:
- Annual revenue: Every lender has its own requirements for businesses when it comes to annual revenue. To become eligible, you should meet standard annual revenue requirements according to the particular lender you will work with.
- Operational history: For a business loan, your contractor business must have an operational history of at least 1 to 2 years which may vary as per the lender you choose.
- Registration: Your contractor business must be registered in a specific location.
- Financial Documentation: You must be capable of providing accurate financial statements to a lender, which they use to demonstrate the repayment capability and overall financial stability of a contractor’s business.
- Cash Flow Over Credit Score: Cash flow is another factor that helps lenders evaluate a business’s performance. A strong cash flow in a business can help overcome a weak credit history.
You must take care of these factors to become qualified for a contractor loan with bad credit.
Methods To Secure A Funding Solution For Contractors With Bad Credit
Here are simple ways that you can use to get a contractor business loan with poor credit history:
- Loan against property: Despite a poor credit record, you can place an asset as collateral to secure a contractor loan. An asset can be your property that holds great value. Pledging a real estate property (factory premises or office building) as security for the loan amount can enhance the chances of a grant.
- Showing strong financial position: Stability in a business plays a key role in getting a business loan. Lenders assess the number of years you operate a business to determine stability. It can usually be 2 years to 6 months depending on the financing company. Keep your business account statements from the last 3 months handy that can depict the financial stability of your business. Consistent cash inflows and additional revenue over the payables represent a good liquidity position for a contractor’s business. Your business must be capable of showing that a profit is significantly more than the debt servicing outflows with a debt-to-income ratio of 1.25 to 2 times.
- Updating a business plan: Of course, every contractor relies on a business plan to ensure a long-term growth strategy. Many lenders require this document to find out whether or not your business is feasible for repaying a business loan. Generally, this document applies to new contractors. In case, you already have a business plan, you should refresh its content by focusing on the key areas such as Business Objectives, Executive Summary, and Budget & Revenue Stream.
- Equipment financing: Another way to secure funding for your contractor business is to apply for equipment financing. It is especially beneficial in bad credit cases. Some lenders offer loans, particularly for upgrading old equipment or machines. You can get some funds for your equipment upgrading requirements. In this case, your business’s newly purchased or refurbished equipment acts as collateral. This is how you can relieve your stress and start with operational enhancements in your business, irrespective of your credit history.
Funding Options For Contractors With Bad Credit
- Secured loans are those loans where you need to show collateral but generally offer lower interest rates.
- Unsecured loans do not demand any collateral but have higher interest rates to offer.
- Asset-based financing involves two types of financing options such as equipment financing and property financing. You can use old equipment or property as collateral against a contractor loan.
- Revenue-based financing helps you secure funding using your company’s revenue details.
Different lenders may have different requirements when it comes to contractor loans with bad credit. All you need is to compare interest rates based on the type of financing you need from different lenders and then choose a suitable one. At https://badcreditbusinessloans.com/, experts will help you by giving you the amount of funds for your contractor business even with bad credit, and let you experience a substantial growth of your business. However, you need to act and choose your financing solution wisely.
