How to Leverage Personal Credit to Get a Business Loan

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Written by Guest | September 16th, 2019
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When it comes to business lending, banks seem to be loosening the reins a little. The second quarter of 2018 saw business loan originations at small, mid-sized, and large banks increase, according to a Federal Reserve survey.
 
That's encouraging if you need business financing. There's just one important hurdle to overcome in getting a business loan: meeting the lender's requirements.
 
The Fed's most recent Small Business Credit Survey found that 23 percent of business owners who applied for loans in 2017 were unsuccessful in getting financing. Insufficient credit history and a low credit score were among the top reasons cited for denial.
 
Both business and personal credit scores can play a part in lending decisions. After all, lenders want to make sure they can count on you to repay what you owe. The good news is that even if you don't have a perfect credit score, a business loan isn't out of reach.

Where to find business loans using personal credit

A traditional term loan might be the first thing that comes to mind when you need capital, but a few other business financing options are pretty easy to get even if you have bad credit:
 

1. Merchant cash advance

A merchant cash advance is a loan against your future sales. It could be a good fit if your business has a steady flow of credit and debit card receipts.
 
Here's how it works: the merchant cash advance lender loans you a certain amount of money, based on your credit and debit card sales. Then you repay that amount, plus interest, with automatic payments from your daily receipts.
 
Merchant cash advance lenders are typically more concerned with your sales than credit scores. There's no collateral needed, and it's a quick way to infuse some cash into your business. Depending on the lender, funding can be completed in just a couple days.
 

2. Automated clearing house loan

Automated clearing house (ACH) loans are similar to merchant cash advances. Instead of your credit and debit card sales, however, the lender uses the average daily balance of your checking account to determine how much to lend.
 
Loan payments are deducted straight from your checking account. Repayment can be daily, weekly, or monthly, based on the loan terms. Like a merchant cash advance, an ACH loan can offer speedy funding without requiring perfect credit to qualify.
 

3. Business line of credit

A business line of credit differs from a traditional business loan in one key way. Instead of getting a lump sum, you're getting a revolving line of credit you can draw against as needed. You only pay interest on the amount of money you use, not the full line of credit.
 
A business line of credit may also be easier to qualify for. Some lenders, for instance, have no minimum credit score requirement. And many lenders require just six months of operating history, versus the one to two years a bank might ask for.
 
One thing to know: you may need collateral to secure a larger business line of credit so take stock of your assets before applying.
 

4. Microloans

Microloans are just what they sound like — business loans that are smaller than the typical loan. Instead of a $500,000 loan maximum for example, a microloan lender may cap loans at $50,000.
 
In fact, that's the ceiling for the Small Business Administration's microloan program. The SBA works with intermediary lenders to offer loans to qualified businesses. The credit requirements for microloans vary but it's possible to get approved even with bad credit. Organizations like Kiva and Accion also grant microloans to borrowers with personal credit scores at the lower end of the scale.
 
A microloan may be a good fit if you're trying to get a brand-new business up and running or you just have a smaller capital need. The only potential hitch? A microloan can take several weeks to fund.

Know your score

Before scouting out business loan options, give your personal credit scores a peek.
 
FICO scores, which are used most often by lenders, range between 300-850. According to Experian, a "good" FICO score ranges between 670-739. Anything above that is either very good or excellent credit. A score of 580-669 would be fair credit, and a score below 580 is poor credit.
 
Knowing which credit score range you're in makes it easier to narrow down the list of business loans you might qualify for. But remember that even a bad score doesn’t eliminate you from the running — lenders also consider other factors, such as your revenues, time in business, business debt, and personal debt. Find a loan option that matches your strengths and assets, and you likely won’t have any problem getting financing.
 
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Rebecca Lake is a financial journalist covering small business, investing, and personal finance. Her work has appeared online at U.S. News and World Report, Investopedia, and The Balance. She also works with top banking and insurance brands, including Citibank, Ally, Discover Bank, and AIG.

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