Last Updated on December 21, 2022 by Selina Parker
It can be challenging to get small business loans if you have a bad personal credit score. Most lenders are not interested in taking on the risk of lending to someone who may not be able to repay the loan.
However, there are still options available for business owners with bad credit. This blog post will discuss the best options for business loans for bad credit and how you can improve your chances of being approved for a loan.
CAN YOU GET A BUSINESS LOAN WITH BAD CREDIT?
It’s not impossible to get a business loan with bad credit, but the terms will likely be less favorable, and the loan amount won’t be as high as if you had an excellent minimum credit score.
Online lenders will look into the following on top of your credit score:
- Your time in business
- Your annual revenue
- Your cash flow
- What kind of collateral you can offer
WHAT ARE SOME BAD CREDIT BUSINESS LOAN OPTIONS FOR BUSINESS OWNERS WITH POOR CREDIT?
There are a few different types of business loans and alternative lenders that don’t require a high credit score or don’t check personal credit. If you have a low credit score, consider these options:
1. SBA LOAN
The Small Business Administration offers several different loan types for small business owners with bad credit. The SBA Microloan and the CDC/504 loan program are one of the most popular.
2. MERCHANT CASH ADVANCES
A merchant cash advance (MCAs) is financing provided by a bank or other financial institution to a merchant in exchange for a percentage of the company’s future sales revenue. This type of financing is usually by merchant services firms and is ideal for businesses with many transactions that need immediate access to cash without having a good credit history.
3. BUSINESS LINE OF CREDIT
Business lines of credit are similar to a personal line of credit but specifically for business expenses. Variable interest rates based on an index, such as the prime rate or LIBOR, are typical for these unsecured loans.
4. INVOICE FACTORING
When a company sells its outstanding invoices to a factoring firm for a lump sum of cash—typically about 85% of the total invoice amount—it’s known as invoice factoring. The factoring firm takes over responsibility for collections and then pays a component of the remaining invoice amount to the business minus a factoring fee. Invoice factoring is a form of secured loan that does not need the stringent credit standards required by other company financings.
5. INVOICE FINANCING
Small businesses may obtain short-term financing secured by the value of outstanding invoices through invoice financing. In contrast to invoice factoring, the firm is responsible for collections, and you can only pay the loan after settling all the bills. Because the underlying invoices are collateralized, invoice financing is more accessible to borrowers with less credit history than traditional loans.
6. TERM LOANS
A term loan is a form of financial support offered to businesses as a one-time payment and repaid over a set period. The length of your secured loan depends on the term you choose and might range from three months to ten years. The maximum amount you can borrow is $50,000, and APRs begin at around 9%.
7. EQUIPMENT LOANS
If you need equipment and have less than stellar credit, Currency Finance is a beautiful alternative lender. They frequently provide equipment financing in as little as 24 hours. To get a loan from Currency Finance, you must have at least $120,000 in annual revenue and a credit score of at least 620.
8. BUSINESS CREDIT CARD
Business credit cards enable business owners to obtain a variable credit limit that they may use to pay for company costs. The typical annual rate (APR) on the best business credit cards may be as high as 25%, but interest-only accumulates on balances that carry over from month to month. The application procedure is also less complicated than traditional financing, which may benefit individuals with bad credit.
HOW TO GET A BUSINESS LOAN WITH BAD CREDIT
CHECK YOUR CREDIT REPORT
Getting a business loan means being prepared. Before applying for a business loan, know your business credit score and report. Although lenders may look into other aspects of your business when determining eligibility, the most critical factor is usually a business credit score.
IMPROVE PERSONAL CREDIT
The more attractive personal credit is, the more business loans you’ll qualify for and at better terms. Improve your credit score by paying your bills on time, maintaining a reasonable credit utilization rate, and disputing any errors on your credit report.
CREATE A SOLID BUSINESS PLAN
A well-thought-out business plan with clear goals will give the lender a sense of security. So, make sure you have one in place if you’re planning to apply for business funding with bad credit.
SHOP AROUND FOR THE BEST RATES
Although getting a business loan with bad credit may be challenging, that doesn’t mean you have to settle for high-interest rates. Compare APRs and other terms from different lenders before deciding on a loan.
Getting a loan, especially bad credit business loan, is not easy, but it’s doable. By following the tips above, you can better qualify for a loan and get the financing your business needs despite having low credit scores.
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“What began as a life and career coaching services company to aide entrepreneurs through the early-stage challenges and tough transformations of starting a social venture has evolved over the years to include mergers and acquisitions, organizational consulting, and business growth advisory services to mission-driven organizations that strive to improve access to basic physiological, safety, and security needs while increasing their profit margin. Clients include founders and organizations with the purpose of addressing deficiencies in delivering quality healthcare and mental health services, sufficient employment, access to clean water and air, safe shelter, adequate food, and more.”