What Risks Are There to Bad Credit Borrowers Using P2P?
Because bad credit history often indicates inconsistent credit repayment, these companies are likely to issue loans to businesses at very high interest. The extra money is used to offset the loss incurred if a borrower defaulted. The higher the risk, the higher the interest. Still, because P2P high risk business loans may be the only available to bad credit businesses, and it can be paid off early before interest payments mount, it may be the only option.
What About Payday and Short-Term Personal Loans as an Alternative?
So-called Payday Loans are an often usurious lending form, meant to provide quick cash in a pinch, usually paid back in a matter of days of weeks. The practice is heavily regulated in some jurisdictions, not in others. Typically, borrowers will incur stratospheric interest rates which, depending on how you calculate interest on a loan with a few days’ term, have been recorded from 30% to 3000%+. With lots of bad press highlighting the folly of payday loans, businesses are much better served with business loans from reputable institutions, many of which in the P2P arena are more convenient than Payday lenders, without the risk.
Why Not Get a Bad Credit Business Loan From a Bank?
Because banks tend to look at your credit score first, many are immediately denied when requesting a traditional business loan. P2P lenders use a diverse array of data to determine your creditworthiness, including your online merchant history and other facets of your overall business health.
How Can You Improve Your Credit Score for Better Loan Terms?
There are many factors that determine your credit score. It is important to always pay debts and bills on time, to carry no more than a 30% balance out of your available credit, and to have as long a credit history as possible with old accounts from established institutions. There are other factors, but if these are observed alone, it’ll make a big difference in your credit score.