Not having good credit can be a complete nuisance when you’re in need of a start up business loan. Banks, credit unions, and just about all traditional lenders will require a start up business owner to provide a personal guarantee when applying for a start up business loan. This means they will check your credit history to determine your creditworthiness and likeliness to pay back your debts — on time.
Fortunately for business owners, Fair Isaac Corporation (the creators of the FICO score), are no longer using failure to pay bills (if the account has been rectified) and unpaid medical bills, when calculating your score, according to a report by the CNBC staff. This opens the door for many entrepreneurs who were originally denied credit (due to one of the aforementioned reasons), the opportunity to obtain a start up business loan.
Sidenote: Please keep in mind that not all lenders have adopted this new scoring model. It may take a few years for at least 50% of lenders to adopt this model. So it may be a few more years before this will benefit you, nevertheless you should start planning to advantage of this now.
What You Need to Qualify for a Start up Business Loan
Based on my experience in working with entrepreneurs in need of capital, most bank and credit unions may require you to meet the following (minimum) criteria to qualify for a start up business loan:
- Minimum 5 year old credit history
- At least one installment loan reporting in good standing
- At least one credit card account reporting in good standing
- No derogatory or delinquent accounts
- No recent late payments (in the last 2 years)
- Low debt to income ratio (below 28%)
- Low revolving debt utilization (below 30%)
Apply for a Start up Business Loan Now
Now (or in the near future — say 3 to 5 years) may be the best time for your to apply for a start up business loan since the credit requirements are beginning to loosen up a bit. Consulting with an expert who is familiar with the process of obtaining start up business loans may help you get the results you want. The experts at LenCred may be able to help you get started. They understand credit and what it takes to get approved for start up business loans. They’ll be able to guide you so you can make the right decision.
Don’t let your challenged credit history keep you from deciding to move forward. The changes made by the Fair Issac Corporation is a clear indication that banks and lenders are aware that they need to make it easier for entrepreneurs and small business owners to be able to qualify for financing. This type of opportunity only comes along every few years. It appears now is the time again. Take advantage of it so you can start and/or grow your business!