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What Entrepreneurs who have bad Credit Need to Know Before they apply for a Loan
Having a bad credit limits your credit options and predisposes you to expensive loans. You credit scores is used to judge you by the lender, thus it is very important that you try to improve it so you can expand your options.Below is a range of scores and their classifications.
300-570 (poor)
580-669(fair)
679-739 (good)
740-799(very good)
800-850 (exceptional)
It’s important you note that there are three primary credit bureaus—TransUnion, Equifax, and Experian that can offer credit scores report and each report their own credit scores for individuals, which might differ and you cannot predictwhich of them your potential lender will use. It’s is also important to note that in the early years of your business, it may be difficult to secure loans from a traditional institution they can even reject small flourishing business, so it is pertinent that you keep building your credit score.
Bad credit score affects your ability to borrow because lenders want reliable borrowers and  want to be sure  that you will repay your debts in full and on time and also want to ensure you do not take on irresponsible amounts of debt. Your credit scores serves as a summary if these information to them and it makes it easy fir them to evaluate your trustworthiness as a borrower. If you have a bad credit, you may find out that you do not qualify for a lender’s larger loan products, or some repayment schedules and no lender wants to loan money to someone they are not sure would pay. In addition to your credit score, they also check your business revenue against the type of loan you are applying for.
There are 5 C’s that summarize what lender’s look out for and they describe how your application will be evaluated and show the things that may help you secure that loan. The 5 C’s are capacity, character,capital, conditions, and collateral.
- Capacity.
This describes your ability to repay the loan. Lenders usually use your debt-to-income ratio and cash flow statements to access this and check how your revenue builds up against your outstanding debts.If your business has a good cash flow and has no accumulated debt, this will aid you win the trust of your lender even with a low credit score.
- Character.
This refers to your credit history and score.
- Capital.
This shows the investments you have made in your business and lendersneed to be sure you won’t default on your loan repayment. They look out for commitment and dedication and If you have had a substantial investment in something it shows a lender that you’re serious about the success of your business which encourages them to give you a loan.
- Collateral.
Collateral refers to assets, . It’s simply anything the lender could take if you default in your repayment and some of the assets might include real estate, inventory, equipment, or accounts receivable.
- Conditions.
Conditions describes how you intend to use the loan and  use the broader context of your financial need. Lenders want to be convinced that you’ve a specific purpose for the loanas well as a vision for growing your business with the loan.You have to put in a lot of work in convincing and proving to them that you intend to use the loan well. Do the budgeting and utilization plan well so you could win your potential lender’s trust.
Even if you have a bad credit score, and you are feeling discouraged, remember that you can still improve it and you can start immediately. To maintain a healthy credit score, the simplest way is to ensure that you make debt payments early. Ensure that you are timely in any utility, rent, mortgage, business loans and personal credit card payments. Each of them have an effect your credit score.
Keep your credit utilization in check and spend conservatively when using credit, and also avoid using up out all your available options. Poor credit makes you feel discouraged as an entrepreneur trying to run a business. If you become aware of the impact your personal spending have on your credit score, it will better equip you in your struggles to build your credit score and get your business running smoothly.[/vc_column_text][/vc_column][/vc_row][vc_row el_class=”seo-link-sec”][vc_column][vc_empty_space height=”50px”][vc_column_text][slick-slider category=”28″ design=”design-5″ speed=”2000″][/vc_column_text][/vc_column][/vc_row][vc_row el_class=”call-out-sec stretch-sec” css=”.vc_custom_1568018042545{background: rgba(0,0,0,0.88) url(https://imbonline.co.uk/wp-content/uploads/2018/07/counter-wrapper.jpg?id=1382) !important;background-position: center !important;background-repeat: no-repeat !important;background-size: cover !important;*background-color: rgb(0,0,0) !important;}”][vc_column][vc_column_text]
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