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PROBLEM:  Dealing with Bad Credit and Still Securing Business Loans

Banks use credit scores primarily as a tool for them to judge the “character” of borrowers.  Of all the underwriting components this is the most subjective one, as well as one of the most important criteria.  They want to believe that the borrower has a self imposed, moral obligation to pay them back.

 

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(This is just one page of the report.  Scroll below to see all the solutions.)

On a day to day basis, loan officers at banks more commonly use the score as a “screening” tool and the use the report itself to understand the borrowers personal expenses.  Most bank representative over depend on the actual score and don’t take the time to really review the payment history of the borrower.  For most lenders, if your score is below a 680, they will not be interested in talking with you, even if you have excellent payment history.  Again, it’s an easy way for them to decline files so that they can move on to more “attractive” borrowers.

As you already know you have to do everything in your power to improve your score.  Bankruptcy, divorce, medical disaster and bad business decision happen.  You need to do your best to establish that whatever your issues were/are, that they are over and that you are in the process of reestablishing your credit.   

SOLUTIONS to Bad Credit Small Business Loans


 
  1. Get focused on repairing your credit yourself, or hire a reputable third party credit repair company to help you.  We have had more success with law firms than with the more common generic credit repair companies.  It has been reported that over 70% of all credit reports have mistakes on them, which may include inaccurate late pays that have exceeded the 7 year reporting time frame.  These late pays should be removed.
  2. Write your Letters of Explaintion’s on the specific derogatory items, before you submit your package to the lender.  Have the letters be factual, with dates and without emotional stories.  Emphasis what happened, what you have done to fix the problem and that you have not been late since. 
  3. When you are going through the initial interview process, promote your general strengths to help give the banker more “ammunition” for him help get over this particular weakness.  Stress your good trends, cash, experience, net income, etc. Whatever you have.  
  4. Sometimes the credit beuras scoring system is just off.  You may have great payment history but just happen to have a low score. This is great news for you.  Stress this to the Loan Officer “I have never been late, I have no idea why I do not have a 750.”  Many banks can get over the low score if you have solid payment history.   
  5.  Find more aggressive banks.  There are still banks and lenders out there that will still go down to a 600 score.  They are rare now, but still out there.
  6. Pay down balances on credit cards or other lines as much as possible.  Try to get them to be below 30% of the limit or gone all together.  If you have multiple accounts pay off all the small balances first.  It’s better to have 3 open balance than ten, even if the total loan amount is the same.  Use whatever money you can come up with, like collecting receivable, selling household goods (try eBay! Or Craig's List), tapping the cash value of your life insurance, bringing on partners/relative to have them pay down your balances, etc.  Any and all of this will help.   
  7. On accounts you cannot pay off, focus on the higher payment loans first and do your best to pay them down altogether.  If you have to be late on payments, ie if you only have a set amount of cash, make the minimum on as many as you can.  In other words, if you have 3, $300 payments and one at $950, pay the 3 - $300 bills.  (except in cases of mortgages as this will hurt your score proportionally more).
  8. Also, check your credit report.  You may find that many of your monthly bills do not get reported on your credit report.  Like private notes or utility bills.  You will have less of a chance getting late pays reported on these accounts.   

 

Also, the worst possible excuse/situation that you can provide is that you just didn’t pay your obligations on time.  This is viewed as a bad reflection of your character (i.e. they will perceive it as negligence or just an unwillingness to pay your bills), which is EXACTLY what the banks want to avoid in the first place. 

Again, you have to show the banks, through documentation, that your credit score issues were a one time, past occurrence and that you have taken the appropriate actions to resolve the issues.            

 

Continuation of Report:  Other Common Causes of Small Business Loan Decline and Their SOLUTIONS 
  • Small Business Loan Help Beginning of Report
  • Dealing With Bankers An overview of how an imperfect loan submission process works, and strategies on how to overcome it. 
  • Commercial Loan Solutions General Overview of most of the Solutions.
  • How To Research Banks & avoid working with SICK banks.
  • High Loan To Value How to deal with being over leveraged.
  • Declining Gross Revenue Get over declining gross sales.
  • Disadvantages & Advantages of Partnerships Specifically related to loan requests.

  • Low Business Cash Flow AKA low debt coverage ratio's & what potential solution are.
  • Low Liquidity or to little cash, relative to the loan request.
  • High Personal Debt your personal expenses have a big impact on your cash flow, see some solutions here.
  • Bad Personal Credit Scores Best solutions to getting over low credit scores.
  • Business Debt Consolidation Loans have their own set of issues, learn best solutions here.
  •  Problems With Other Sources of Income also referred to as Affiliates
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