Home owners with bad credit ratings have much in common with small businessmen who have less than perfect borrowing histories. Both find it difficult to get loans.
But business people have found a way that often works and so the home owner can learn by watching what many businessmen do to start up and prosper again.
Loans don't always come easy to a business
Getting credit so you can run a business is difficult at the start of the life of the business. This is almost always true.
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It's because until a business has developed a good history with borrowings, like repaying on time and actually making some money from sales, many of the banks and the other major financial institutions will be reluctant to advance any money. These lenders will want to be sure their loans will not be lost.
But money is the lifeblood of a business, and business owners must have access to credit. So they have developed a strategy that often works.
Four stages of a business
First they break the lifetime of their business into four easily recognizable stages.
Stage one businesses are start-ups. This is the time when the owner is setting up. He has the idea and some strategies to turn them into a profitable business. But he has very little money. He is prepared to work long hours, to make do with very little, to talk to people and gather a team around him. But there is no business yet. No income from all this effort.
Stage two businesses have business plans and product samples. Things have moved along. All the planning, brainstorming, making contacts, placing orders for proto-types or sample products, and finding premises are in the past. They are about ready to launch into the market, but need a little more time to plan and prepare.
Stage three businesses have full business plans and pilot programs in place. It is a time to test the water, so to speak. Just before they commit to all the expenses of a shop for office, staff and expensive advertising, they do a couple of trial runs. Again, a lean time with a lot of work and effort for very little financial return.
But then they reach stage four. At this point the business has been in operation for some time and have proven revenues and regular, known expenses.
How businesses find loans
Now we are saying this, because it is always easier to get loans at stage three and four. What do businessmen do to finance the first two stages? They look to the informal lending market.
Rather than going to their bank, they look for the all-important financing from friends or relatives, their partners, local development organizations, private foundations offering program-related investments, state and local government bodies offering low-interest micro loans, credit unions which will lend to small businesses, university departments with relevant research funding, and so on. Many of these bodies regularly make the risky loans to businesses in their early stages.
Lesson for borrowers with bad credit loans
Ordinary borrowers that need a bad credit loan can take heart from this example.
Forget about the big banks, and approach informal lenders. They are already lending to people with dubious credit. Your can take your bad credit history to these people and small lenders and negotiate a loan you are they will be happy with.
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