Small business loans for people with bad credit come with outrageous interest rates. A small business loan of $100,000 will be anywhere from 12% to 18% interest, and even higher. The monthly payment on that loan is approximately $1300. The total interest paid on the loan will be over $200,000. By contrast, a loan at low interest rates of about 7% interest will cost around $86,000 in interest over the life of a 20 year loan, and the payments would be around $800 a month. It’s crucial to be able to put money back into a growing business and the savings from avoiding business loans with bad credit will enable an owner to put more money back in the business and avoid bankruptcy because they are unable to pay off the high monthly fees. Good businesses avoid any loans with bad credit.

A good business owner will never risk his or her business on a high interest loan that would cripple their finances in the long run. The rate of bad credit business loans is the same as a credit card’s. Good business sense is not to use a credit card to finance any part of your business unless the interest rate is fixed and low. Instead of a business loan with bad credit, an owner does best to repair their credit and get a lower interest rate.

So what can you do if you have bad credit? The first step is to look into why you’re being classified as a risky borrower. Order a credit report, one that is paid for and includes your FICO score. If your FICO score is below 500 you can forget any loan. Even lenders that work with bad credit borrowers won’t loan to you. Anywhere from 500 to 620 and you can expect exceptionally high interest rates. At rates between 630 and 680 your interest rates can be quite good. Above that and banks will be fighting to give you low interest rate loans.

In order to get a higher credit score there are a couple of things you can do. Reduce the number of debts to the minimum, and increase the credit lines of the best credit lines you have. Pay all monthly debts on time. Never make late payments. Visit a reputable credit counselor for more advice on your particular credit issues.

The first and most common way is to permit other persons to co-sign for the loan. By doing so, they take on all the risks and legal responsibilities of the loan. This is actually quite common among small businesses, where members of management or other employees may sign on to the loan in hopes of making their employer do better in the long run. Of course, this means they will be on the hook if their employer defaults, so the loan will need to be amenable to their needs and pay structure as well as that of their employer.

Another way is to offer up business property as collateral. This is especially useful for small businesses which own small store fronts in high traffic areas, as such property will always be valuable. Banks are more willing to lend when they know they will receive property if the loan defaults, although with the current glut in the property market it may not be possible. Still, property is the most common form of collateral, and many storefront properties retain their value in even the worst of economies.

Another way to receive a small business loan even if one has bad credit is to turn to charities and local community developers. These nonprofit organizations often have motives such as urban renewal or fighting poverty, leading them to be very friendly to store owners whose bad credit is not a reflection of their honesty or ability to repay the loan. While their scope is limited and local, often they offer loans with much reduced rates of interest, or will help to sponsor a small business loan by co-signing it.