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Steps For Those With Bad Credit To Obtain Small Business Loans

Aug 17, 2007
Acquiring a business loan can be a difficult task for a company, especially if it has a bad credit history. Companies require business loans for starting a new venture or for the expansion of the existing venture. The whole process is cumbersome and calls for a great deal of preparation before approaching the lenders for business loans. The lenders require the applicant to be certain about the business plans, including market trends and knowledge of the industry.

The credit reports of the owner and the company reveal a lot to the potential lender about the company. Bad credit does not infuse confidence among the lending or credit agencies, so owners should carefully maintain and check on their own credit scores and the credit scores of the company. The possibility of acquiring a large loan is rare with bad credit. The business proposal and the business plan must be thoroughly prepared. The lenders are reluctant to invest in loans to high-risk businesses. The ability of a business to repay the loan weighs heavily on the prospects of getting the loan approved or not.

Important Tips For Managing Bad Credit

1.Personal credit and the credit of the business enterprise must be kept separate.

2.The use of EIN to establish a business credit profile should be able to separate bad personal credit from affecting business credit.

3.Efforts must be made to build strong business credit while repairing your poor personal credit.

4.Separate financial statements must be prepared for the business, which do not infringe upon personal finances.

Understanding Trade Loans
Utilizing the facility of a trade loan is a better option for people or enterprises plagued by bad credit. The basic need for the loan can be met by using trade loans and the approver rarely requires a personal credit report. Trade loans can be used for important things, such as the following.

1.Purchase of a product or a service.

2.Purchase of an office or machinery.

3.Purchase of necessary supplies for an office

4.Keep money in rotation

The guidelines or regulations for trade loans are less stringent than for a normal loan. The no personal guarantee and minimal credit check make it easier and more affordable for young enterprises to use trade loans to satisfy pending liabilities. Below are the descriptions of four other factors responsible for approval of business loans.

The Character Of The Personal Credit Report
Lenders closely study the personal credit report and debt repayment trends of people and their enterprises. Bring any default to the notice of the lender and the chances of getting a loan quickly diminish.

The Cash Flow Of The Business
The cash flow statement of the enterprise is also given the due attention of the lenders, who analyze the potential earnings and the ability to repay the loan. Carefully maintain the cash flow statement and duly research all the information.

Collateral Or Pledged Assets
Collateral represents the assets of the enterprise that can be kept as a surety or guarantee by the lenders or creditors in order to safeguard their interests in case of any default on the loan.

Capital
All the assets, equity, earnings, infrastructure, and commodities are capital. The creditor analyzes the coverage ratio and the debt to equity ratio and discovers whether there is justification for the loan.

Additional Help
Keeping these points in focus and improving them shall help a business owner acquire small business loans even with bad credit. There is software for keeping track of the financial records necessary for obtaining loans. This software is affordable and designed with small businesses in mind.
About the Author
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
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