How to get a business loan for bad credit

business loans for bad credit

As a small business with bad credit, it can be more difficult to obtain business loans or other types of small business financing. Although you may need to consider less than traditional funding options, it is still very possible to obtain business loans with bad credit.

Luckily, there are options if you are seeking out business loans for bad credit or trying to obtain other forms of small business financing.

What Is A Bad Credit Score For Businesses?

Bad credit is that one word dreaded by millions of Americans. Many people do not know their current credit score, and much less ways to increase it if needed. When it comes to financing for a business, the business owner’s credit score is normally taken into consideration as a factor when determining whether or not to approve a business for financing.

Let’s first take a look at what is a personal credit score. A credit score assists in determining the likelihood of repayment of financing and credit scores are anywhere between 300-850. The higher that score is, the higher chances for approval. In this quantitative analysis, a few things are taken into consideration when assigning a credit score. A huge component is the credit history, this often refers to the number of open accounts, total levels of debt, repayment history, among other factors.

According to FICO, a score ranging from 300-579 is considered poor credit. Fair credit ranges from 580 to 669, and good credit ranges from 670-739. However, very good credit ranges from 740 to 799. Lastly, excellent credit ranges from 800-850. How does this relate to financing for a business? Well, when a business applies for financing, typically the funder will request the business owner provide a name and social security number as most funders will run a credit check.  This assists the funder in determining whether or not to approve a small business for financing.  This is just one of many factors a funder will look during the application process.

Let’s take a further look into what affects your credit score, as well as how this impacts the type of financing you would qualify for. Remember, loans for bad credit do exist.

 Factors That Affect Your  Credit Score

While a funder looks through many factors when deciding to qualify a business for financing, the business owner’s personal credit score does come into play.

Here are a few of the contributing factors:

  • Number of open accounts
  • Total levels of debt
  • Repayment history
  • Length of credit history
  • Types of credit
  • New credit

If a business owner’s finances fall short in one or more of these areas, the personal credit score may be negatively impacted. However, having bad credit does not mean automatically that funder will un-qualify the small business.

Which Business Loan For Bad Credit Is Best?

Here is the good news, there are a wide range of business loans and other forms of financing available if you have bad credit. But you’ll need to consider why you are obtaining the funds and about how long it might take to make all the payments.

As you consider payment timelines, you’ll likely be able to narrow down your search. The unique needs of your business can be met by a business loan designed to work with bad credit borrowers with big business plans.

Something very important to consider is that not every funder takes into consideration the same factors when approving an individual for business financing. The main overarching item is that some financing companies will take the personal credit score into review along with other factors when determining whether or not to approve a business for financing. Whether a business gets approved or not is really going to vary by business and funder as each funding company as its owner requirements as to what factors it takes into consideration along with credit score ranges. Other factors other funders may take into consideration are credit card processing statements, other accounts receivables, whether a business is seasonal, and past bank statements. In most cases, a business owner may have a lower personal credit score for products such as a merchant cash advance, however products such as a small business loans or lines of credits typically require a higher personal credit score. It all comes down to each funder and how it looks at each aspect of the business. However, those are just some factors taken into consideration.

Other Small Business Financing Options To Consider

If you have a lower credit score, you may have trouble getting approved for more traditional business financing. But there are several other options to consider when seeking out business financing for bad credit. We will take a closer look below:

Merchant Cash Advance

A merchant cash advance is a common way for small businesses to obtain small business funding. Depending on your situation, it can be a relatively quick way to get the funds you need to run your business.

When a financing company receives an application for a merchant cash advance, the company will normally review the credit card/debit card processing statements to determine if the merchant cash advance is right for your small business. A merchant cash advance works by providing the business with the capital it needs in a fast and easy way, in return for a portion of the business’s future revenue receivables at a discounted price. The small business financing company receives a certain percentage of the business’s future accounts receivables.

As a quick option, this can help you find funding fast.

Business Credit Cards

With a business credit card, you can cover essential expenses now and pay for them later. Before signing up for a business card, make sure to review all of the terms of the credit card to make this is the right option for your small business.

Although this might be an easy financing option if you have bad credit, it is important to look at the long-term consequences. Can your business afford the rates that you’ll typically find associated with credit cards?

Line Of Credit

A line of credit offers a funding source when you need it. In many ways, a line of credit is very similar to a business credit card as you can draw on your business line of credit when you need it.

If you want to have the peace of mind that you could draw on more funding quickly, then a line of credit can be helpful. The funds are there for you when you need them.

Bridge Loans

If you need a short-term financing solution, a bridge loan can help. As the name suggests, a bridge loan can help you hold on until a longer loan comes along. For example, let’s say you need a large loan to keep your business afloat and have a loan application in progress with a high likelihood of success. That could be the perfect time for a bridge loan if you need help holding on until those much-needed funds arrive.

With a more permanent financing solution on the horizon, a bridge loan can help you through the gap.

Small Business Administration Loans

Although there are several non-SBA loans available, Small Business Administration loans can offer very attractive terms. These loans are backed by the federal government with the intention of helping small businesses grow across the country. With the help of this federal backing, you can usually enjoy lower rates and better terms with SBA loans.

Although these loans can offer the funding you need at a great rate, they can be difficult to come by. If you have bad credit, it may be especially difficult to qualify for these federally backed loans.

Bad Credit Loans Are Available

The bottom line is that bad credit loans and other financing options are available to business owners that seek out these opportunities. Although it may require some creativity, you can find a business loan or alternate financing option to suit your needs and your credit.

Small business financing can be a useful option to help your business stay afloat during difficult times. Beyond our current health crisis, managing your business debt responsibly can make it easier to take out business loans or other financing options in the future.

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