If you are a woman with bad credit and seeking a business loan, it might seem like you have three strikes against you:
1) you have bad credit;
2) you are seeking a larger-than-normal loan to get your business off the ground;
3) and, of course, you are a woman.
Don’t let this negative thinking defeat you. Banks and other lending institutions that have done their homework will know that women are actually a very good credit risk, and many times they are an excellent business investment. Ask anyone who has helped people in developing micro-enterprises in the developing world — women are often the best bets!
How Women Find Business Loans
Here are several steps that you need to take if you are looking for a business loan, are female, and have bad credit:
- Do your research on banks and lending institutions and find ones that favor women and minorities. They are out there if you look hard enough. Look for lenders that have easier standards for approval in the loan-to-value and debt-to-income ratio departments.
- Now that you have found a group of lenders that work with women, begin to compare interest rates and fees that are charged. Begin to make a list of lenders to whom you will apply first.
- Before applying for business loans, take a look at your credit history and re-write it with details explaining why you had a difficult time making payments during a certain period of your life. Lenders will look far more favorably on a person that had sky-high medical bills for a year or two, for instance, than someone who simply could not control their credit spending habit. If expanding your credit report with relevant circumstances will aid you in getting a loan, fill out that report with helpful details immediately.
Another angle to play on your application is contrasting your personal credit rating with your business prospects. A savvy lender can tell if your business has great potential even if you have had a difficult time on the personal front in repaying loans and credit. In some ways, that is comparing apples to oranges.
If you can convince a lender that you have adequate debt service coverage, you greatly increase your chances for approval of a loan. Shoot for a debt-service coverage ratio of 1.2:1, meaning that you take in $1.20 in income for every $1 that you spend as you do business.
If you are able to give the lender collateral, especially liquid collateral (easily converted to cash), then you also improve your chances at approval. If you have cash, a CD, a savings account or similar liquid collateral, you might be able to bypass a credit check. If you have a poor credit score, it’s not likely that you will have tens of thousands in cash on reserve, so you should be able to offer real estate, equipment or other business assets.
Even for women with bad credit, it’s not impossible to secure business loans. Once you find a lender that is favorably disposed towards female-run businesses, you can follow the steps above to improve your case as a good credit risk.