It is a commonly known fact that bad credit is one of the few terms bankers hate and fear. Hence, you may be apprehensive at the prospect of approaching bank for franchise loan with bad credit. But the good news is that it is possible to get franchise loans even if banks refuse you.
Here is how you go about acquiring franchise loan with bad credit.
User Guide
Know Your Credit Score
Your credit score is a reflection of your loan repayment history and the loan you carry and hence knowing the same will help you assess the possibilities of acquiring loan.
Study Your Repayment Capacity
Knowing your ability to repay the loan amount helps the lenders decide in your favor. Supporting your statement with your bank records you can claim your ability to repay a particular sum every month.
Account For Bad Credit
Once you apply for franchise loan with bad credit you will be asked the reason for the poor credit history. Hence, analyze the reason and come out with it to the lender, which will show that you have assessed the reason for the poor credit score. This will highlight your level of accountability and improve your chances of getting the loan sanctioned.
Tap The Bank’s Door
It is true that bankers do not encourage loan applicants with bad credit. But it is always best to start here. Not because you may have a chance of getting loan but because it is one of the ways to apply for SBA loan. Yes, to qualify for SBA loan your loan application has to be turned down by bank or other finance institutions.
Qualify For SBA Loans
Small Business Administration, referred to as SBA, offers various loan program types. To qualify for any of these loans, you need to:
- Be a small business. Your business should be in the size requirement mentioned by SBA so that your business belongs to the category of small business as defined by SBA.
- Maintain accurate financial history of your franchise to give an insight into how your business performs.
- Have a business plan. Success never comes by to those without planning and neither does loan. Hence, as a prospective borrower you should have a winner business plan report that informs what your business is all about, the market for the same and why it could only win.
- Have financial projection, which helps assess your business’s growth and convince the lender of your progress and the ability to repay. Submit your last year’s balance sheet, income and expense budget and sales projection for the year.
Go For The Right Loan Program
Now that you are aware of the requirements for SBA loan, you can move forward to identify the right type of loan program for you.
- 7 (a) loan program offers up to $5 million. The loan can be used for capital needs and purchase of equipments.
- CDC/504 loan program offers up to $5 million. The funds available through this loan can be used to buy land and machinery.
- Microloan program offers up to $50,000. The loan can be used to start a business, for capital and buying equipments.
Study the interest rates and fees, if any, for these loans before you make your choice. If your required loan amount is less than $50,000, Microloan program is the best choice.
Other Options – Alternative Lenders
When banks and SBA fail, there are still possibilities out to get your franchise loan sanctioned. And that will be through alternative lenders. Yet another advantage with them is that the sanctioning process is much quicker when compared to traditional lenders. However, be prepared for higher interest rates.