If you are a small business owner and have less-than-adequate credit score, you may face problems in getting a small business loan. Most lenders shirk away when you approach them with a bad credit score. But if your business has been doing well and you need a loan for expansion, there are certain things you can do to improve your score before applying for the loan.
Increase Annual Revenue
Driving your annual revenues up will make an impression on lenders. The more you earn the better it reflects on your business. When lending to small businesses with bad credit, lenders want to ensure that you are earning enough to repay the debt.
Generally, lenders will offer a loan amount equivalent to 8-12% of your annual revenue. So, you can make a case for that amount, letting your lenders know that you are aware of the constraints and willing to work within them.
Rake in Some Profit
Revenue increases are good, but profit is even better. If your balance sheet is in positive you can be more confident of getting a business loan even with a tumultuous credit history. However, there is no hard and fast rule to be profitable, but it does give your application a boost, especially since you already have a bad credit score.
Reduce Accumulated Debt
Lenders will also enquire about your existing debt burden and will dig deeper into your credit history. Lenders do not like to be in a “Second Position”, which means they do not want you to service other loans before them. If you have any prior loan obligation try to pay it off or ensure that you can show enough funds in your cash flow to allay the fears of the second lender.
Maintain a Healthy Cash Flow
Continuing from the previous point, building up your cash reserves always makes a good case in your favour for a business loan. Lenders usually want your previous year bank account statements to ascertain the operational health of your business. If you have a bad credit score, it may be prudent to improve your bank accounts before applying for an SME loan.
Credit History is Important
There are two types of bad credit histories, one is the lack of funds and the second is the lack of intent. If your history is marred by habitual defaults and late payments, then most lenders will not sanction a loan. However, if you have been a responsible borrower who fell on hard times, you may be able to secure an SME loan.
Apply with NBFCs
Banks in India are cutting through some difficult times and even SMEs with good credit scores find it difficult to get loans approved. But there is another financial option available today, Non-Banking Financial Companies a.k.a. NBFCs. These online lenders have a much more flexible lending policy, and they also factor in your personal credit score for granting SME loans. So, if a bank has rejected your loan for bad business credit, you may be able to secure one with your personal credit score by applying with an NBFC like Lendingkart Finance. NBFCs also offer advantages like minimal documentation, quick turnaround time (3 days in case of Lendingkart), and flexible repayment options.
Click here to know more about SME loans from Lendingkart Finance.