How Do I Get An SBA 7(A) Loan With Bad Credit?

For a lot of people, bad credit can be unavoidable. However, bad credit does not mean you’re a bad person, or bad at your job or dream business. So many external circumstances can lead to bad credit, such as long-term unemployment leading to late payments, which can make applying for loans a nightmare. 

For an SBA 7(a) loan, the most popular loan that SBA has to offer, one of the key factors of eligibility is a good credit score. This is to prove to the lender that you have the means to handle your money well enough to start your business properly.

This is also to prove that you’re not wanting the loan to pay off your debts and payments to improve your credit score, rather than the actual purpose of the loan - to start your business.

While bad credit can affect your eligibility for an SBA 7(a) loan, that doesn’t mean it’s not entirely impossible to apply for this loan. Here is how to get an SBA 7(a) loan with bad credit!

What is the minimum credit score for an SBA loan?

To clarify, SBA doesn’t have a universal minimum credit score for their loans. Instead, the minimum credit score depends on the lender. Each SBA loan will have a different minimum credit score requirement depending on the banks. In most cases, the minimum credit score for an SBA 7(a) loan is 680.

Is it possible to get an SBA 7(a) loan with a bad credit score?

The reality is that not all lenders will be willing to take a risk by giving out an SBA 7(a) loan to someone with a bad credit score. SBA 7(a) loans, as well as most other business loans, are a risky move enough as it is.

These loans are generally only given to individuals who have a clear business plan and who know how to handle their personal finances to help to fund the start of their business. Credit scores are proof of how the person can handle their money.

However, that doesn’t mean that it’s impossible to get an SBA 7(a) loan with a bad credit score. Just because online lenders might have a system that says you are ineligible due to your credit score, doesn’t mean you can’t try.

As we all know, there are a multitude of reasons that contribute to a bad credit score. A bad credit score doesn’t always mean that you can’t handle your money (and therefore can’t start a business efficiently) - it often means that life has dealt you some very unlucky cards.

Remember - a bad credit score, to a lender, is the biggest indicator of how quickly you will be able to pay off the SBA 7(a) loan.

All it takes is a lender who is willing to take a risk. It’s rare, but some lenders will offer an SBA 7(a) loan to individuals who have a bad credit score, but have detailed in their business plan how they intend to amend the figure. As SBA don’t control the minimum credit score figure themselves, it will take a bit of extra research to find a lender who will allow people with a below-minimum (less than 680) credit score.

It also helps to meet a lender in person to explain why your credit score is so low. Sometimes, a bad credit score can be down to a one-time problem, and a bad business credit score can be down to a business crisis.

Explaining these events with clear evidence can be the deciding factor of whether the lender will willingly offer you a loan or not. Just make sure to collect every piece of evidence possible to prove why your score is low.

How do I get an SBA 7(a) loan with a bad credit score?

It’s important to remember that your business credit score and your FICO score are two different credit scores, but both figures are used when applying for an SBA 7(a) loan.

Your business credit score can be affected by several factors. The lender will look at your business credit score with these factors in mind:

  • Size of the business (staff, financial statement, annual sales, etc.)
  • Risk within your business’s industry
  • Credit history
  • Payment history
  • Debt
  • Debt utilization rate

Once you have familiarized yourself with your business credit score, the main thing you need to do to apply for an SBA 7(a) loan is to come up with a detailed business plan.

This plan is essential for the application regardless of your credit score, but not only will this plan describe everything the loan will go towards and how you intend to pay it back, but also how the loan will help you to improve your business credit score.

Your personal credit score is something that your lenders will be most apprehensive about, because they won’t be willing to give money to someone who could easily spend it on personal debts and payments rather than their business.

Lenders are more likely to give out loans to people with detailed business plans (complete with evidence and examples) who have an idea of how to improve their business credit score from the help of their SBA 7(a) loan.

A very basic example of this would be a business plan that explains how the loan will pay for new equipment, which will then boost profit that can pay off business debts, which will then improve your business credit score.

How to Make It Easier to Be Approved

During your application, there are some steps you can take to make it easier to be approved for an SBA 7(a) loan.

  • Take out a business credit card strictly for business transactions
  • Make timely payments from lines of credit with your suppliers
  • Budget and track every single payment
  • Keep your debt-to-income ratio below 43%, as this will indicate how efficiently you can repay debts 

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