Business Loan with bad credit: Different ways to apply, eligibility criteria and its purpose

A business loan is now very common among startups, traders, retailers, and manufacturers. A business loan can be used to meet working capital needs as well as for a variety of business expansion purposes such as purchasing plants and machinery, managing cash flow, training employees, hiring new employees, and so on. Here in this article information on different ways to apply for a business loan with bad credit, eligibility criteria for availing Business Loan, and its purpose is mentioned.

Briefing on a business loan with bad credit

Starting a business and seeing it through to completion necessitates a great deal of zeal and determination. If you are enthusiastic about starting your own business, you must create a well-thought-out business plan. You would also need to educate yourself about current market trends before starting your business. The business world can be both captivating and overwhelming. It’s a place where no two days are the same, and everyday brings new challenges and opportunities to learn from your highs and lows. As a result, being well-prepared can help you deal with all situations more effectively.

Once you have a basic idea for your business, you must ensure that you have sufficient funds to get started. If you do not have enough money, you can apply for a small business loan. As you are probably aware, financial liquidity is critical to the operation of your business. That is why many businesses seek additional funding. Unfortunately, if you apply for a loan with bad credit, it maybe difficult to obtain the necessary financing.

But how do you get a business loan if you have bad credit? Do not worry there are alternative loan options for your business that you can pursue to obtain the financing you require.

Eligibility criteria for availing a Business Loan

The business loan is available to anyone who runs a legitimate business with a high turnover. To validate and authenticate a person’s business, different banks use different criteria and terms. After all, the loan amount, tenure, and interest rate, as well as whether or not to provide the loan, fall under the purview and authority of the bank. Some of the eligibility criteria for availing a business loan are as follows:

• Any Business (Sole Proprietorship, Public Limited Company, Private Limited Company, or any other form of business structure)
• Track record of a business
• Business turnover
• Profit made by the business
• Cash flow statement

Purpose for applying a business loan  

• Business Expansion

Purchasing land or leasing a property to expand business operations when you believe your company has grown large enough and scaling up at this time is an opportunity you do not want to pass up; a company can expand operations more than once based on its growth projections.

• Inventory Purchase

Small businesses frequently require immediate capital for the purchase of inventory or raw materials. There maybe times when the market demand for your product is extremely high. Businesses may lack the funds to obtain the raw materials required to meet the increased demand. Individuals and entrepreneurs can solve this problem by taking out loans to purchase the inventory required for production.

• For increasing Working Capital

Small businesses frequently lack sufficient working capital to carry out their daily operations. They will take out short-term loans until their own assets generate enough revenue to cover their operational expenses.

Different Ways to apply for a Business Loan with bad credit

• Approaching to NBFCs (Non-Banking Financial Companies)

If your company has a low CIBIL score, NBFCs are your second best option for obtaining a business loan. They are financial institutions that do not have banking licences but can offer loans and credit cards at reasonable interest rates. NBFCs are typically not overly concerned with a borrower’s or business’s credit score.

• By approaching Small Finance Banks or Micro Finance Institutions

In general, these financial institutions look at an applicant’s financial stability and repayment ability, as well as financials and loan defaults, if any. If they believe everything is in order, they will have no trouble approving a business loan. However, interest rates charged maybe higher than those charged by private or public sector banks.

• Apply for a Secured Loan from a Leading Bank

A secured loan is a type of business funding in which the borrower must submit collateral or security in the form of property, equipment/machinery, gold, raw materials, stock, inventory, and so on to the bank or lender. By submitting collateral, the bank’s risk is reduced and it becomes easier to sanction a loan, even if the borrower has a low CIBIL score.

• Obtain a bank overdraft facility

Overdraft is a type of loan in which the lender grants a total credit limit. The interest rate is only calculated on the amount used from the total sanctioned limit. If a borrower has a good relationship with the bank and has a current or savings account with the same bank, he or she can obtain an overdraft and use it for business purposes. Banks rarely check CIBIL scores before approving a credit limit.

• Get help and support with Peer-to-Peer lending

Obtaining a business loan with a low CIBIL score can be difficult. You could try peer-to-peer lending for a loan. The amount of loans offered by such entities is quite small, and no collateral or security is required from the borrowers. However, the interest rate on these loans is quite high.

Final Thoughts

Personal loan repayment history of a business owner is considered for business loans. Even if one has a bad credit score, there are ways to borrow money for the business. This can be accomplished by choosing a different lender, enlisting co-borrowers, consistently generating surplus, and making the right pitch, among several other immediate and medium-term strategies to improve the score and getting a business loan for the expansion or increasing profitability of the business.