You Don’t Need Credit to Get a Loan
Or do you? Many people every year fall behind on their bills, default on a mortgage, have a vehicle repossessed. Most of them have a valid reason, whether it’s losing a job, becoming ill, or a rough divorce (ask my ex-wife). So, what happens to good folks who hit a wall? Well, their personal credit goes to hell in a hand-basket. If you’ve read our article on business credit 101 or have checked out our credit rating tables then you can see what I am talking about when I say bad credit- roughly 630 and below.
What’s it take?
Enough with the jokes, so what do you do when you have bad credit and you really need a loan? Despite the fact that bad credit will discourage traditional lenders from actually granting you a loan there are a number of financial institutions that specialize in loaning money to people [sometimes businesses] with bad credit. Even though it can seem incredibly difficult to get a loan when you have bad credit, there is hope.
Steps You Can Take to Get a Loan With Bad Credit
Whether you need money for a new car, a home improvement or to launch your business, the steps below will help you obtain a loan when you are plagued by bad credit. The very first and most important thing is to know your own personal circumstances. Know where you are before you start applying left and right. It would do you well to sit down with a financial adviser prior to applying for a bad credit loan. Your options will be based on credit history, and particular personal circumstances may hinder you more than others. Some common circumstances that will affect your chances of actually getting a loan can include:
- Your Personal Credit score:
- If your score is below 580 your options are very limited.
- Pulling your credit multiple times:
- Checking or “pulling” your credit score too often can affect your credit rating.
- Special Circumstances:
- Bankruptcies may only allow you to get a high-interest loan or a restricted-limit credit card.
- Recent Credit card and previous loan default on your record will almost certainly give you considerable trouble in obtaining a loan.
1.) Don’t Give Up!
If you’ve made a couple questionable moves and your credit suffered due to them, do not give up! Been turned down ten times in a row? Don’t give up! One of the most common reasons people with bad credit feel it is impossible to get a loan is because they don’t try hard enough. With the proper amount of drive and determination anyone can make anything happen. As Thomas Edison famously said, “I have not failed 700 times. I have not failed once. I have succeeded in proving that those 700 ways will not work. When I have eliminated the ways that will not work, I will find the way that will work.”
2.) Know Your Loans!
Know what tools you have in your belt. Can you put up collateral? If so a secured loan may be your best bet. Don’t have any assets or anything to put up? You’re looking at a unsecured loan. If you only have a limited amount of collateral you may be able to at least get a restricted credit card. If you are applying for a bad credit small business loan then you will also need to understand the relationship between your personal credit guarantee and a small business loan. The SBA will have more information regarding that topic.
3.) Places to Look for the Money
While we do not directly recommend any specific lender or financial institution, (we want to keep this site 100% non-commercial) we can however give you a couple hints of where to look for your loan:
- The most obvious is family and friends. If you have enough trust and feel confident you can pay the money back, look into borrowing it from a family member or friends. If you don’t know anyone with the kind of money you need, then you are probably asking for too much in the first place.
- Employer - Talk to your employer if you have one. Sometimes they will be able to work out an advance and then they can structure the pay back through your paycheck. This one is risky in the sense that your mixing your personal life with your work life. For some people, this could be a good option.
- Niche Financial Institutions – We’ve all seen them advertising from time to time, give one a shot and see what happens. Make sure you read through their agreements THOROUGHLY. A lot of the smaller places are more scam than anything.
- Your community bank. Very small banks can sometimes pull strings to make things happen for their loyal customers. Give it a shot. This will probably only work if you have a relationship with the manager or someone in the bank.
- Hard money. Some hard money lenders will give you a loan with bad credit, but you definitely will have to have collateral.
- Factoring - You may be able to borrow or even sell your accounts receivable if you own a business. Factoring is a financial transaction whereby a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business. Factoring differs from a bank loan in three main ways. First, the emphasis is on the value of the receivables (essentially a financial asset), not the firm’s credit worthiness. Secondly, factoring is not a loan – it is the purchase of a financial asset (the receivable). Finally, a bank loan involves two parties whereas factoring involves three
- Stock-Secured Loans – If you own stocks or bonds you may be able to borrow against them. That is, if you don’t want to sell them in the first place. You can see all the FDIC rules and regulations involving this particular method, here.
- Grants. There is free money out there. While the government won’t give you personal financial assistance, you may be able to get a small business grant.
4.) The Application Process
When you get to the point where you’ve found a lender and you wish to apply, then here are a couple tips and considerations to keep in mind:
- Make sure you bring your drivers license or passport, social security card and any other relevant document(s) to prove you are actually you.
- Include all assets you can. This may be your home, valuables that are deemed assets, stocks, bonds, etc.
- Report your income thoroughly. This will help with a couple things, the first being that the financial institution won’t loan you more than you can actually afford to pay back. They will be able to find out your D.T.I. or debt to income ratio to ensure you can indeed afford it.
- Be sure to examine the terms of the loan in detail, and do your absolute best to negotiate the interest rate so your monthly payments are affordable. Like I mentioned before, depending on your circumstance you may have some wiggle room.
- Before signing the application, be sure that all of the terms of the loan are terms you agree to so that there are no surprises later. If you deal with a smaller institution [maybe even larger] they may have questionable practices and pull the bait and switch.
I must reiterate, you really need to examine the expected monthly payments and only borrow what you absolutely, positively can afford before you sign any agreement.
5.) You Got the Loan, Now What?
Don’t Default! You took out the amount you could afford, make sure you pay it. Pay it early if you can.
Begin to repair your credit. You got a loan, and you are now absolutely confident you will be able to pay it back. Great! Now is the time to start to backtrack on your bad debts and work with creditors and explain to them your situation. Many times you will be able to also pay those folks back with a payment plan.You would be surprised how quickly your bad credit can turn into good credit. Look to the government as well, you may be eligible for some of their programs.
We hope this guide was informative and has helped you in your search for a bad credit loan. At Start up Loans we strive to help people secure the funding they need and small businesses get the money to keep moving forward! Until next time, thanks for reading.