This is genuinely bad news for people with bad credit who are seeking business loans. There are companies out there that claim to help business owners with bad credit, get credit lines of up to $250,000.
It sounds too good to be true for a reason.
The fact is that if you bad personal credit, you are severely limited when it comes to finding funding for your business. However, there are some steps that you can take.
How do I know how much money I will need? Funding needs are usually determined by adding the amount of money needed to cover one-time startup costs including buildings, leasehold improvements, equipment, inventory and working capital for expected operating expenses.
How do I get a loan? Lending institutions typically look for the 5 C's when evaluating loan applications. The 5 C's are credit, character, collateral, cash and capacity. Lenders will expect business owners to contribute their own money to the development of the business before they will consider loaning money to a business owner. They also make decisions based on credit score, good character and ability of the business to pay back the loan.
Are there non-traditional loan sources? Yes. There are several kinds of non-traditional sources of financing such as microlending programs, angel investors, venture capitalists and various other non-bank lenders.
What documents will I need to apply for a loan? Typically, you will need a personal financial statement, tax returns for the last three years (if currently in business, both business and personal tax returns), as well as copies of contractual agreements (for example, a copy of a lease). Depending on the situation, lenders will likely want to see a business plan, or at a minimum, financial statements demonstrating how the loan will benefit the business and be paid back.
Is my credit score important when applying for a loan? Credit scores are a critical decision factor in evaluating a loan application. Most financial institutions consider the way a person handles his or her personal credit a good indicator of how business credit will be handled. Prior to applying for a loan you should obtain a copy of your personal credit report along with your credit score. Even with a great business plan, a poor credit score can prevent you from getting a loan.
Are there government grants for my business? Generally, there are no government grants available for small businesses. In fact, the term "grant" may be a misnomer, since grants simply pay for services the government needs done. Most government grants are awarded to non-profit organizations or local governments, not to private companies. One possible exception is for companies developing or exporting agricultural goods, including food and forest product. If you think you may qualify for one of these, click on reference. Another exception could be the SBIR or STTR programs, which fund the research and development of technological innovation that meets specific government needs.
Does the SBDC provide financing? No. The SBDC and does not lend money. SBDC Consultants can help you identify sources of funding to best fit your financial needs.
Can I get an SBA guaranteed loan to refinance present debt? Yes, if the debt is a business debt (i.e. not personal) and the refinance must result in a minimum of 20 percent improvement in cash flow.
Can the SBA lend me money? No, the SBA does not directly lend money. However, it does provide guarantees which eliminate some of the risk to its lending partners, such as banks, community development organizations and microlenders. SBA partners lend money to small businesses based on the guidelines for each of its three loan programs.
What are angel investors and how do I find them? An angel investor is a wealthy individual who provides capital for early stage or start-up businesses, usually in exchange for an ownership stake in the company. Angels often provide funding for businesses that need more capital than is available through personal and family investments, but are not large enough to attract venture capitalists. Angel investors often organize themselves into angel networks or angel groups to share research and pool their own capital.
How can I get access to venture capital? As a rule, venture capitalists do not lend to small businesses because the large amount of dollars they invest (millions) are beyond the scope of most start-ups. In a situation where venture capital is an option, investors will look to share in the profits of the business and will expect a huge return in a relatively short period of time.
Managing Your Business. Many small businesses hire individuals they know or those referred to them by friends and family members. To hire specialized employees, small businesses might work with a staffing agency, headhunter organization, online resume database or simply take out an ad in the classifieds. Retaining employees after hire is very important because of the costs associated with turnover. Employees will stay at their jobs if they are adequately compensated and challenged by their work.
Writing a Business Plan. A business plan provides a reference for determining the degree of success of your business efforts. It should be periodically updated to reflect your current situation. It can be a helpful tool for developing a marketing plan, expanding your current business or obtaining capital for the future. Additionally, the SBDC offers business plan classes locally.
Legal Issues.
What legal form should my business adopt? Choosing the legal structure for your business depends on several factors including formation requirements, liability issues, tax and succession-related concerns. Common business entities are sole proprietorships, partnerships, C-corporations, S-corporations or Limited Liability Companies (LLC). It is best to consult with an accountant and/or attorney to choose the appropriate legal entity for your business.
What is the difference between an employee and an independent contractor? The major factors to consider in deciding whether a worker is an independent contractor or an employee fall into three main categories namely; behavioral control, financial control and relationship of the parties. Usually a worker is considered an employee only when the business has the right to direct and control the worker. Typically, if you have significant investment in your work you may be considered an independent contractor. If a worker receives health insurance or company paid retirement such arrangement would justify an employee/employer type relationship. Please refer to the IRS Form SS8 or contact the IRS directly when in doubt
How do I find a good attorney? To find a good attorney, it may be wise to talk with a several prior to making a selection in order to make sure that there is a good fit between the business owner and the attorney. Generally you want to get an attorney that is familiar with your industry. It is advisable to inquire up front about the rates for the services provided. The business owner may also wish to seek references from other business owners who have used the services of a given attorney.
What types of insurance should I carry for my business? You should determine the appropriate type of insurance your company needs based on the different risks inherent to your business. There are many types of insurance available: liability, property and worker's compensation. An insurance agent or broker can guide you to make choices that will effectively meet the specific needs of your business.
What is a copyright and how do I obtain one? Copyright is a form of protection provided by the laws of the United States (title 17, U.S. Code) to the authors of original works of authorship, including literary, dramatic, musical, artistic and certain other intellectual works. This protection is available to both published and unpublished works. Copyright is secured automatically when the work is created A work is "created" when it is fixed in a copy or phonorecord for the first time.
What is a patent and how do I obtain one? A patent is a property right granted by the US Government to an inventor "to exclude others from making, using or selling the invention in America or importing it for a limited time set when the patent is granted. To get a patent, an application must be filed in the US Patent and Trademark Office.
What are trademarks and servicemarks? Trademarks (e.g. Coca-Cola) and Servicemark (e.g. UPS) prevent others from using the same name. Trademarks/servicemarks cannot be used to prevent others from making or selling the same goods or services under a clearly different mark. A trademark, issued by the US Patent and Trademark Office, lasts for 10 years and can be renewed.
Can the SBDC review my legal paperwork (e.g. leases, contracts, etc.)? SBDC consultants do not provide legal advice. We encourage you to establish a relationship with an attorney that specializes in business issues who can review your legal documents.
