If you have an excellent credit score of 690 or higher, you’ll get the widest options of getting a $5,000 loan. Fortunately, the average FICO credit score is 704 in America.
Image source: FICO
That makes many Americans eligible for multiple 5,000 dollar loan options.
But, you can still get a loan even with bad credit.
This guide will show you exactly how to get a $5,000 loan for personal use and business, or even with bad credit.
How to Borrow $5,000 for Personal Expenses
Research shows that outstanding personal loan balances rose up 17.5% to $125.4 billion in early 2018, compared to one year ago.
Image source: Atlas
Evidently, the process of getting personal loans has been quite convenient for many.
With these simple steps, it certainly is.
Determine the Intended Use
Unlike a business loan, which can be used on an income-generating item, a personal loan isn’t likely to produce any returns. That means you should have an income stream to repay the loan.
For that reason, you should be extra careful to borrow only what you can repay.
That also means being brutally honest about what you actually need.
Carefully evaluate what you really can’t do without, out of all the expenses you may have, including: debt payments, clothing, shoes, house remodeling, education fees, hair care, fuel/ public transport, babysitting, rent, entertainment, sports, recreation, groceries, car, bank fees, medical bills, daycare, insurance, mortgage, vacation, property taxes and utility bills (cable, cell, electricity, water, gas, internet…)
During this process, remember people tend to buy things they don’t need.
You certainly don’t want to end up with a $523 monthly loan payment for a new vehicle, yet you could have a much lower repayment for a second-hand car.
Only take a $5,000 personal loan for something that you truly need.
Evaluate Your Loan Options
Housing debt is the largest form of debt in the U.S., followed by student and auto loans.
Image source: Federal Reserve Bank of New York
But those aren’t the only types of personal loans you can get.
Even with bad credit, you can still get many of the loans people with good credit get. The main difference will be higher interest rates.
Here are some of the available options:
- Secured personal loan: With this loan, you benefit from great interest rates since you put up your assets as collateral.
- Unsecured personal loan: A viable option if you don’t have any assets to use as collateral. With such an installment loan you’ll pay a higher interest rate.
- Fixed-rate loans: Most personal loans have a fixed rate. So, your monthly payments will stay the same until you finish repaying.
- Variable-rate loans: The total interest and monthly payments in this loan can rise and fall based on fluctuations of benchmark rates set by banks.
- Auto loan: This is a car loan: a loan specifically intended to buy a car. It’s typically a secured loan with the car serving as collateral.
- Mortgage: A loan specifically meant to buy a house. Lenders exist who offer mortgages for people with bad credit.
- Debt consolidation loans: With debt consolidation, multiple debts are rolled into one loan. You benefit by making a single monthly payment and getting a lower APR.
- Peer-to-peer loan: You can get such a loan through peer-to-peer platforms. Investors fund your loan through the site and get their money back when you repay.
- Loan with co-signer: Getting someone with a better credit score to sign for loan with you can give you better interest rates. But only do this if you’re completely sure you’ll repay.
- Student loan: Such a loan can help college students pay for university education. Bad credit lenders can offer such loans too.
Simply pick an option that suits you, depending on your particular circumstances.
Understandably, the cheapest loans have tougher requirements.
Compare Lenders and Pick the Best
After figuring out what type of loan you are going for, you can narrow down your search to lenders who offer that specific type.
But you’ll still have a bunch of lenders to choose from.
So, you need to evaluate how much they offer. Can they give you a $5k loan or not?
If they do, what are their rates?
Note that lenders are required to show their typical or representative APR (annual percentage rate). This is slightly different from the interest rate. The interest rate is charged as a percentage of your loan amount. On the other hand, the APR includes the interest, plus other standard charges (things like administration and arrangement fees).
Also, what terms and eligibility requirements do they have?
Perhaps, they have minimum credit score requirements? Others may offer a 5,000 dollar loan without any credit check. Maybe it’s a guaranteed approval loan. Or you could get instant approval. You may be required to provide collateral for a secured loan or none for an unsecured one.
By assessing such terms you’re sure to find your best option.
Pick the lender you prefer, go their website and fill out the application form. Always double-check your application to eliminate all mistakes before submitting.
Apply for your $5,000 loan by producing all the necessary documents, including:
- your employment certificate
- proof of income
- a checking account under your name
- telephone numbers to your home and office
- email address
Carefully read before agreeing to all the terms and conditions, then sign and submit your agreement.
After your details are assessed and your loan approved, you can even get funding within one day.
How to Borrow $5,000 for Business
According to the U.S. Small Business Administration (SBA), about 73 percent of all business borrowing is done by small businesses. Big, established companies have access to capital platforms like angel investors and equity based funding.
Image source: SBA
But how much do small businesses borrow?
The SBA data shows that many small businesses use less than $5,000 in startup financing. So, you’re in pretty good company if you’re looking for a $5,000 loan.
Image source: SBA
You just need to follow a few simple steps.
Evaluate the Financial Needs of Your Business
The first step on how to borrow $5,000 for a farming business or any other type of business is to get a clear picture of what you need the money for.
Each business is different.
That includes a wide range of businesses, such as: restaurant, bakery, retail store, grocery store, supermarket, gym, flower shop, air duct/ ventilation cleaning service, snow and ice removal, pet grooming, massage studio, photo studio, medical/ health clinic, yoga studio, computer training, web design, jewelry shop, hair salon, furniture mover, laundry service, photography, pest control, gardening, gutter cleaning, senior care, home-based child care, building and construction, house painting, freelance writing, carpentry, computer repair, garage, public relations agency, bar/ nightclub, wedding/ party planner, wholesale/ distributor, interior designer, among others.
Above all, you need to be sure that you absolutely need that money.
Considering that businesses waste as much as $37 billion on unnecessary meetings, you don’t want to end up borrowing money only to waste it on unproductive expenses.
Depending on your business, evaluate what is truly critical among all the expenses that need financing, such as: accounting/ bookkeeping, advertising, financial consulting fees, transport, bank charges and fees, taxes, insurance, computers, software, professional and trade association fees, utility bills (internet access, rent, telephone, electricity…), web hosting services, insurance, legal and attorney fees, license fees, taxes, office furniture, equipment, cash register/ Point-of-Sale system, office supplies, travel, payroll float, inventory, equipment, among others.
Then ensure that a loan is the most viable option.
Plus, have a pretty clear plan on how you will get money to repay the loan.
Consider the Types of Loans Available for Businesses with Bad Credit
Multiple loan options exist.
Maybe the reason a huge number of small businesses (79 percent) depend on credit cards is simply because they aren’t aware of the different types of loans available to them.
Image source: NFIB
However, if you have bad credit, you won’t access all available types of business loans.
Here are the options to get a $5k loan:
- Equipment financing: This is a great option, since the equipment you buy/ lease using the loan serves as collateral for that loan. How great is that? What’s more, the fact that it has collateral means this loan offers favorable interest rates. Only that such a loan is specifically meant for business equipment. You can’t apply it to other expenses. It can help you lease or buy such equipment as a tractor, walk-in-cooler, lawn mower or truck.
- Invoice financing: This loan is best suited for business-to-business (b2b) startups which invoice clients. It’s almost like the lender buys your invoice. You get an advance of about 85% of the invoice amount from the lender. The lender follows up on your invoice and, when your client pays, you get the remaining amount minus lender’s fees. A valuable service that sustains your cash flow. This way, you can pay recurrent bills even when clients delay or pay irregularly.
- Purchase order financing: Similar to invoice financing, the lender takes custody of your purchase order and provides finances to supply products to your client. When the customer pays, you get the amount minus lender’s fees. This relieves you of the huge capital requirement to fulfill big orders from clients.
- Hard money loan: Just like the equipment loan, hard money loans are specifically for real estate and fixed assets financing. The asset you buy serves as collateral for your loan, making such a loan accessible to startups and businesses with bad credit. However, it’s typically a short term financing with a higher interest rate than typical bank mortgages.
- Short-term loan: Short-term loans offer quick and accessible financing. You can get approval within a day. Then you’ll be making weekly or even daily repayments for up to 3 – 18 months. However, that convenience comes at a higher interest rate. If you’re considering this option, you need to be sure that you’ll have sufficient cash-flow to make loan payments.
- Merchant cash advance (MCA): This is one of the most flexible types of loans you can get, if you can’t qualify for any other type of loan. You pay more when business is booming, and less when business is slow. That’s because the lender takes a portion of your credit card sales, after having given you a cash advance. The only downside is it’s probably the most expensive loan you can get.
- Online line of credit: Online lenders offer easier qualification requirements and faster funding for lines of credit compared to bank credit lines. But the interest is higher than banks. This is suited to businesses with not so great credit scores. Here, you get capital you can draw on regularly. It can even be revolving credit lines, which reset to the original amount once you pay back the full balance. Certainly useful to cover cash flow needs and emergencies.
Clearly, you’ll be spoilt for choice when selecting the best option.
Compare Lenders and Pick the Best
Having identified the type of loan you need, evaluate direct lenders who offer the best loan terms.
Consider those who offer favorable eligibility requirements.
Some lenders would require a specific number of months of business operation and certain minimum amounts of revenue. In some cases, you should have accounting and bookkeeping software.
By assessing such terms you’re sure to find your best option.
Pick the lender you prefer, go their website and fill out the application form.
You’ll also need to upload several documents for a $5,000 loan, including:
- proof of income
- bank statements
- valid photo ID
You’ll get your money in your bank account as soon as the lender approves and releases funding, which can be as short as one business day.
Fastest Way to Get Online Business Loan Offers In Minutes
How to Get a $5,000 Loan with Bad Credit
Research shows that about 82 percent of small business failure is due to poor cash flow. And the main reason small businesses can’t get loans to sustain their cash flow is poor credit scores. Poor credit scores are caused by lack of cash to repay debts.
Also read: How to boost your credit score by piggybacking someone else’s credit
In other words, you can’t get money because you don’t have money.
A similar challenge faces 37% of Americans who are considered subprime borrowers. Having a credit score of 669 and lower makes it hard for them to get personal loans.
Fortunately, there’s a way out: a $5,000 loan, bad credit.
Reliable lenders exist offering installment loans for bad credit, either for your business or personal use.
Conclusion
Remember, just as getting a loan can be challenging, repaying can be even more challenging.
Therefore, always ensure you have a solid repayment plan before taking a $5,000 loan with bad credit.
And when you do get the loan, put it to good use.
Don’t divert your finances to other unplanned expenses; however urgent they may seem.
In the unfortunate situation that you completely don’t qualify for any type of bad credit loan, work on improving your credit score.