Problems With A Lack Of Credit
Ever try to apply for a loan with no credit on your side? Getting blood from a stone would seem mildly easy in comparison. There was certainly a time when small businesses with no loan history had no hope of getting a loan and had to rely on other means of support. More recently however, there are newer avenues through which a small business may be able to obtain much needed funds through small business loan processes that actually do not require an established credit history. The downside is that interest rates are often off the chart, and a fair amount of collateral may be required.
Most lenders do agree that the best way to apply for a small business loan without prior credit is to build the reputation of your business, allowing it to stand on its own two feet when it comes to financing options. Doing so means that lenders will be far less likely to take advantage of your situation.
Incorporation as an LLC is one option. Limited Liability Corporations are something that lenders are truly interested in, due to the fact that most of these entities have properly researched, and constructed a plan that is failsafe. New corporations will obviously not have a credit history, and it will accurately show that you are applying for a new small business loan. Most good lenders are risk takers, meaning that they may view your business as a viable opportunity.
You also need to send a strong message that says your business is worth the risk. You need to provide a business plan and vivid projections for the growth of your business over the next year or so. Nothing beats a strong game plan that inspires confidence.
Be proactive in offering a repayment plan. Lenders are very impressed when someone comes to them with a loan request that is accompanied by a strong repayment setup. It tells them that you have thought this thing through and are serious about making good on your promises. A viable repayment plan tells the lender that you are worth taking the risk.
Document everything. There are any number of guidelines and articles of documentation that must be turned in as a part of any loan application, especially when there is no credit history in the equation. However, lenders will want to see your personal tax returns for the last two years, as well as personal finance statements from your bank, and a well constructed business plan. They may also ask for a detail description of your current state of business affairs, such as whether or not you rent an office, pay business utilities, the extent of your current client list, etc. The more details you can provide, the better your chances are for securing a loan.
Dress for success. Put your best foot forward. Present yourself as a professional and you will be treated as such. Lenders want to know that you are prepared to do what is necessary to be successful and that their money will be well spent. Hints of irresponsible spending will cause lenders to proceed with caution.
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