TRUST. It’s just a 5-letter word, but don’t you know it has the power to change lives? TRUST can be too powerful that it can open many doors of new opportunities for success. When you are “trusted”, you are given better chances to fly higher.
However, just like what Spiderman’s Uncle Ben had said, “with great power comes great responsibility.”
Business loan based on trust
In the world of financing, it’s a fact that when lenders grant you a loan, it means they trust that YOU can handle your financial obligation to repay them on time. Let me say it again — they TRUST you. They believe that you’ll honor your loan agreement. How lenders determine if a potential borrower can be trusted or not may depend on various factors, but it’s mainly due to credit history.
According to Shivani Siroya, a mobile finance entrepreneur and the CEO and founder of TALA, while banks and other financial institutions do not know their potential borrowers on a personal level, they have their own way of gauging a person’s “trustworthiness” when it comes to handling their finances and managing their debts — and that’s through credit scores.
You’ve probably heard many times that a potential borrower’s credit score matters a lot to lenders because they use it to determine a person’s financial reliability. Generally, having a high or excellent credit score will increase your chances of getting approved for a loan, while having a low credit rating can cause a negative impact on your application.
Now, what if you’ve never had any credit history yet? Does that automatically mean you can’t get a business loan?
Truth be told, the process may be more difficult, but it’s not impossible for you to get approved for a loan. Having “no credit score” doesn’t mean “having zero credit score.” It simply means there’s nothing on your credit report yet since you have not borrowed any money in the past. According to Consumer Financial Protection Bureau, almost 11% of American adults (or 26 million people) do not have a credit score.
Although there are some lenders who only want to deal with potential borrowers with enough credit history, don’t fret. Remember that having “no credit score” is easier to overcome than having a negative one.
Build your credit history
All you need to do is build your credit history (which is better than fixing a poor credit rating). Getting a secured credit card (a type of credit card that is backed by a secured deposit used as collateral on the account should you default) is a good strategy, but if you can’t, it’s necessary that you use other forms of credit or loans that will help create your financial track record. Make sure that the lenders report to these 3 major credit bureaus (Experian, Equifax and TransUnion).
While well-established lending institutions depend heavily on credit scores, there are other alternative lenders who are willing to give loan opportunities to those who are “credit invisible” (refers to borrowers who don’t have enough financial history to produce a credit score). Among the loan products they offer for people with no credit history are credit-builder loans and payday loans.
One thing you should keep in mind, though, is that these lenders usually charge higher interest rates and shorter loan terms than banks. Be careful of loan sharks and their outrageous fees. You can lessen any financial risks by making sure that you know and understand first what every potential vendor can provide for you before you submit your application.