Gaizer.com Tips for Business Start-ups

Most commercial banks will shy away from clients with credit problems. However, there are organizations that specialize on clients with bad credit, no credit, or with a short credit history.  These lenders have the most flexibility when lending and their loans usually carry a higher interest rate. These institutions lend lower amounts and in most cases require a person have a business plan.

Although good credit is an important factor for getting a loan, it is not the only factor.  If you don’t have perfect credit, you can mitigate it by providing a thorough business plan, collateral, a higher co-investment in the project, a cosigner, etc.  You will have to explain any outstanding issues with your credit.  Moreover, lenders have different appetite for risk (large commercial banks are usually more conservative), so you may be able to find a lender that will work with you.

It is better to clear up problems with your credit before applying for a loan because the bank will give you better rates and terms.

Microlenders

Microlenders lend smaller amount to individuals who do not require much capital. For example these loans could be used for home based or crafts businesses. Banks and other non-profit/for-profit lenders offer micro loans. Banks and other institutions do not usually require a business plan or financial projections, just the borrower’s personal and credit information.

There are quite a few non-profit organizations that do microloans for individuals who have low credit scores, little credit history or do not have collateral. Usually, loans below 25,000 are termed microloan and banks process them as such. In most cases banks will not make use of an SBA guarantee with microloans, due to the cost and time require making this small loan.

Microlenders usually make smaller loans and have a community focus. Credit unions, local development corporations and other non-profit lender can be labeled as alternative lenders.

Alternative Lenders

These are specialized lending institutions that have different evaluation and risk criteria than banks. Though banks are larger institutions that have a greater lending expertise, these institutions are specialized in different industries (such as restaurants, clothing companies, etc) business size, or take higher risks than banks, allowing them to make loans that a bank might decline. They usually charge higher interest rates since they are making riskier loans and/or have higher operational costs.