If you own a business, you know it takes money to make money. If you’re a woman, it could be a bigger challenge to get it. Women receive less financing and lower loan approval rates than men, reports CNBC. In 2017, the average business loan for women was $57,097, while men cashed $103,604. What’s up with that? Likely, credit history and scores. The average woman-owned business has a six-month-shorter track record than ones owned by men, and a credit score that’s 20 points lower. But small business loans for women with bad credit are available. It can be frustrating to find and be approved for financing, but you’re not alone. There are steps you can take to get the funding you need, even if you’ve been rejected for a loan in the past.
Here are answers to your most common questions about small business loans for women with bad credit:
What’s a Good Score and a Bad Score?
Getting financing is a numbers game that starts with your personal credit score, which is issued by the three main reporting bureaus: Equifax, Experian and TransUnion. A credit score ranges from 300 to 850, and is ranked from bad to excellent. The higher the score, the better your credit.
These are the basic tiers, according to Credit.com:
- Excellent Credit: 750+
- Good Credit: 700-749
- Fair Credit: 650-699
- Poor Credit: 600-649
- Bad Credit: below 600
The average woman-owned business has a credit score of 598, while the average male-owned business has a score of 618, according to CNBC. While it seems like a small margin, anything below 600 falls into the bad credit category.
In addition to your individual credit score, your business may have a credit score issued by Dun & Bradstreet or Experian. This number is based on the strength of your business as a loan candidate. This score ranges from 0 to 100, and the higher the number the better.
What Impacts My Credit Score?
Personal credit scores are based on a few factors. First is payment history, which reviews the timeliness of paying your bills. Next is your credit utilization rate, which shows how much of your available credit you actively use. The final factor is your credit history. Lenders look at the type of credit you have, and how long you’ve had it.
Your business credit score is based on your company’s financial history. It’s based on the age of your business, your payment history with vendors, suppliers and lenders, and if you have any liens, judgments or bankruptcies. If your business is new or if your vendors don’t report your payments, it’s possible that you haven’t yet established a business credit score.
Why Is My Credit Score Bad?
If your score is bad, it could be due to a few reasons.
1. Payment History. It’s not uncommon for a busy entrepreneur to let bookkeeping fall through the cracks. Unfortunately, paying a bill late or skipping a payment will negatively affect your score.
2. Credit Utilization Rate. If your credit cards or lines of credit use more than 30 percent of what’s available to you, your score will be lower.
3. Credit History. If your debts and credit are new, you may not have established a track record, and that can hurt your score.
The same factors apply to your business credit score. If your credit score doesn’t qualify you for a traditional loan from a bank, credit union or online lender, don’t worry. Fortunately, there are small business loans available for women with bad credit.
What Are Small Business Loans for Women With Bad Credit?
Women with bad credit can get funding from alternative lenders. Considered bad credit business loans, they allow you to be evaluated on factors outside of your credit score.
In addition to getting the funding you need, these loans help you avoid the frustrations you may experience with a traditional lender. Traditional lenders often place hidden limitations on lending, but alternative lenders make the process easy by offering a visible baseline standard you can use to determine if you’re ready to start the process. Also, the approval process with a traditional lender can be time-consuming. With alternative lenders, you can get a decision in as little as 24 hours.
How Do I Know If I’m Eligible?
To be eligible for small business loans for women with bad credit, you need to match three criteria. First is how long you’ve been in business. You’ll need a full year under your belt to be considered. Twenty percent of businesses fail within the first year, according to Business Insider, and being around past the 12-month mark demonstrates that you have staying power.
The next consideration is your annual sales. If you have at least $100,000 in gross yearly sales, you’re on the right track for being approved. Sales are a great sign that your business isn’t just a hobby that generates a little money.
Finally, you’ll need three months’ worth of bank statements. These documents will provide insight into how well you handle your money and cash flow. This is important if the situation that caused you to have bad credit is far away in your rearview mirror.
How Do I Apply?
If you meet the requirements of eligibility, the next step is to apply. This may require filling out a short online application and providing three months of your bank statements. There’s no obligation and usually no need for a down payment or collateral.
How Can I Use the Loan?
Small business loans for women with bad credit can be used to grow your business in several ways. You can cover capital expenditures, such as updating your equipment and improving your facilities. The money can cover day-to-day expenses, such as payroll, inventory, marketing and overhead, or you can use the loan to pay bills, taxes and vendors. Also, the money can be used as available cash; having working capital reserves means you’re ready for future growth as well as unexpected immediate needs.
How Can a Bad Credit Loan Help My Business?
A loan can help your business in a variety of ways. First, it gives you the working capital you need to support and grow your business. It also helps to protect your personal finances by keeping your own money separate and out of your business. Having a business loan also means you don’t have to mix money with personal relationships by borrowing from friends and family.
Available cash also allows you to pay your bills on time, which protects and improves your credit score. And a business loan helps you to build a credit history, which can help you get approved for other types of loans moving forward.
Knowing your options allows you to take control of the future. A small business loan for women with bad credit may be exactly what you need to stop worrying about money so you can get back to the job you do best: growing your successful company.