A question that plagues many entrepreneurs is how to obtain a business loan with personal credit card debt. The truth is that entrepreneurs don’t have to be debt-free in order to get financing for their business ventures. The most important factor is having a good credit score that will prove to potential lenders that the applicant is capable of managing debt.
Debt is measured against one’s income, and acceptable ratios vary between banks. If you are the president of an established and well-managed company, personal credit card debt is hardly an issue when applying for a business loan. However, individuals applying for loans as a way to start business will have their personal financial situation examined.
Before extending business loans, financing institutions look at credit card debt in order to get an idea of the personal habits and financial management skills of the loan applicant. In today’s state of economy, having a credit card debt is not unusual. However, only borrowers who make timely payments enjoy good reputation with lenders.
Lenders and credit rating agencies have tightened their requirements in recent years. Naturally, most financial institutions are wary of granting loans to persons and businesses that are likely to default. Upon considering what type of lender to choose, you might first contact your local bank. Your chances of obtaining a loan are higher if the loan official knows you in person. Well-established loans and personal credit cards with the bank work at your advantage. In case that the offered terms and conditions are unfavorable, it doesn’t hurt to look for other financial entities. It pays to shop around before making the final decision.
If you need additional financing to expand your business operations, you should be prepared to provide the financial institution with information on what you are going to purchase. In addition, you might have to present figures showing the expected income increase that will come with the business expansion.
Another way to get a business loan with credit card debt is to obtain a line of credit. Credit lines usually come with variable interest rate and shorter payoff terms. Variable interest rates create better opportunities for the bank to profit. At the same time, you can renew it after the first credit line has been paid off in full. With the businesses credit line, you can gain access to $50,000 and spread the payments over a period of seven to ten years. You can use the financing toward the purchase of new equipment or finance other business initiatives.
In addition, you can apply for secured loans using your accounts, machines, equipment, or other business properties as collateral. Applying for a small business credit is yet another option. These credit cards are easier to qualify for compared to credit lines and loans. Once you pay off the balance, you have access to more credit.
Finally, if your credit card debt is not excessive and you are paying it in a timely manner, you have good chances of obtaining a business loan.
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