For self-employed individuals, it takes time before their small businesses take off. It requires patience and faith, and sometimes having to take out a few loans to survive bad times. Unfortunately, this could lead to some of them ending up with bad credit scores.
While it might be subject to immediate rejection from traditional sources, there are still other strategies and alternatives open. Even if you have bad credit history, a low score, or not enough credit history to apply for conventional options, here’s how you can still find loans.
Bad credit loans refer to a variety of loans that cater to people with bad credit history who would otherwise get instantly rejected should they apply for traditional business or personal loans. Depending on the context, it can refer to personal loans or unsecured loans.
A personal loan is issued by financial institutions like banks, credit unions, or online lending platforms such as Giggle Finance. It may vary in amount depending on the provider, and you are set to pay it in fixed amounts at regular intervals. Of course, one factor that will determine the conditions of the loan is your credit history. Bad credit history doesn’t necessarily mean zero loans will be made available for you. However, good credit scores usually translate to lower interest rates and better payment terms. Meanwhile, bad credit scores face higher interest rates and challenging payment terms.
Another type of loan usually associated with bad credit are unsecured loans. It refers to any loan that doesn’t require a collateral. They are usually easy to apply for and quick to get approved, and they generally carry fixed interest rates. Additionally, monthly repayment terms for this kind of loan rarely extends beyond seven years.
Now that you have a good grip on bad credit loans, it’s time to check out the options available to you. Despite the greater risks of rejection, perseverance and diligence will still pay off, getting you a loan that can provide your self-employed enterprise the boost it needs to recover, thrive, and grow in this challenging environment.
Here are the loan options you can try despite your bad credit:
Credit unions are usually the more flexible and more forgiving option compared to traditional banks. The main requirement to take out a loan from credit unions is to be a member first. Thankfully, an increasing number of credit unions now offer same-day membership and same-day approval, allowing you to meet their requirements for a faster loan approval.
It is important to understand that credit unions are much more forgiving than banks because of their lower overhead costs. The concept behind credit unions is that its members pool their resources to help their fellow members in need–and you could be one of them. This translates to lower interest rates and better payment options. Their drawback compared to banks is usually in the loanable amount available, as well as the accessibility in terms of the number of branches and facilities. If you’re a self-employed individual and you have a credit union near you, it’s worth a shot.
What sets P2P apart from other loan options is that this way, you appeal and transact to other people like you. Most P2P platforms are now available online, where borrowers are connected to lenders. If you’re in need of a loan, you post your needs and the lender-users will accept your requests if they agree with your request or if they’re willing to make a counteroffer. In P2P platforms, traditional metrics like credit score or the history for your self-employed businesses are often set aside in favor of the lenders personal preferences. Whether it’s an appeal to their emotion or your business has something in similar with them, you have a better chance at a P2P platform.
If your offer is reasonable, you can get more than one offer. This is where you get the opportunity to choose for the best deal. Remember to check for the each offer’s interest rates and their payment terms. Because of the competition between personal lenders, you can expect to get good offers.
If you have a home you’re still paying for, you can use some of the equity you’ve built upon it to take out another mortgage. This second mortgage allows you to raise funds from the difference between the current value of your home and the remaining balance on your original or first mortgage–released to you in the form of a loan. It might also be made available to you in form of home equity loans or home equity lines of credit (HELOC).
For the second alternative, a HELOC opens up a line of credit for you based on the value of your home’s equity at the time of application. You gain access to a revolving fund–you can borrow any amount with the equity amount being the credit limit. Interest rates only apply to the amount you borrow at any time and once you’ve paid off your loan, you can start borrowing again.
For self-employed workers, this is a good way to raise your needed capital. If you’re confident that you can meet the payment terms of your second mortgage, this can give you a good amount to realize your plans. However, failure to pay this in time could mean foreclosure of your home.
The tried and tested option for getting out of financial woes. Usually, borrowing money from friends and family no longer requires background checks or submitting relevant documents about you and your self-employed business. There’s little to no interest rates and they’re doing so not for profit but for an earnest desire to see you grow and succeed.
Having said all those benefits of borrowing from people you know, it’s more important that you don’t shirk away from your duty to repay your loan. It might not result in you losing your property or getting lawsuits filed against you, but it will seriously stain your relationship with them. More than the amount they lent you, it’s the trust they’ve given you that’s more important in these kinds of transaction. It’s invaluable and irreplaceable once broken.
Despite falling into bad credit ratings, there are still a number of options available for you so that you can sustain and recover your self-employed business. More importantly, you should consider these options as temporary and keep on working on improving your credit ratings. These self-employed loan options are not just for boosting your funds but, when done correctly, can give you opportunities to build your credit history back up, opening more options and opportunities for you should the need ever arise again.