Qualifying a Business Owner
for a Bad Credit Loan

Do you qualify for a bad credit loan?

What happens when a business owner needs a bad credit loan? He has no salary that a lender can garnish if necessary unless he runs his business by generating an actual paycheque for himself.

In many cases there is no equity in the business or it is mortgaged to the maximum.

Is there a way for the business owner who has bad credit to qualify for a bad credit loan?

Payment Process Makes a Difference

Lenders tend to look for ways they can collect their money when they approve anyone for a bad credit loan. Although collateral is a big issue, so is the borrower' s ability to repay the loan. In the case of someone that is self-employed, it can be difficult to go beyond collateral unless they choose to create a payroll account to pay themselves. Some business owners will do this but usually only if they have several employees working for them. This is not as pertinent if there is enough collateral to cover the bad credit loan, but when the collateral is insufficient, the lender looks for other ways in which he may be able to collect his money in case of default.

Is There Any Equity in the Business?

When a business owner needs a bad credit loan and has no personal assets, the lender may be willing to accept equity in the business. Of course, this is not always possible because in many cases whatever equity is in the business is already mortgaged. In that case, the business owner will have to come up with collateral in some other way to cover the bad credit loan. Depending on the type of business he may choose to pledge operating machinery that is the tool of his trade.

Are There Personal Assets?

Even if a business owner needs a bad credit loan for his business, he can certainly use his personal assets if he needs to do so. Of course, that means he will more than likely have to match the amount of the loan pound per pound. Those who have good credit can sometimes pledge less collateral than the face value of the loan, but when you don' t have good credit to justify pledging less collateral than the loan, the lender will rarely agree to do that. What he will do is agree to allow you to pledge personal assets such as your home, lien free car, or other fully liquid assets.

In the case of a business that is incorporated, the lender may not agree to allow the owner to pledge personal assets for business expenses. After all, protecting one' s personal assets is one of the reasons owners choose to incorporate their business. That doesn' t mean the lender won' t allow it, but it' s a decision that lies solely with the lender. However, it is inadvisable to mix your personal and business assets-use personal assets to cover a personal loan and business assets for a business loan. It is financially unsound to use the two interchangeably.

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