Business Loans with Bad Credit
The credit atmosphere today is a totally different one. The obsession of financial institutions in using credit scores to analyze the potential borrower has, without a doubt, significantly increased.
A little plot twist – So, you need some funds to run your business, perhaps take on that expansion project. You go over your options. You think bank and credit unions for that. Don’t you need an excellent credit standing for that?
Yes, that’s right. However, that’s not as crucial as the overall financial health of your business. Even with a bad credit standing, you can still get some financial institutions that will cut you some slack and offer you financing.
However, be prepared to pay higher loans costs and interest rates. In this article, we’ll go over business loans with bad credit, and explore the options for business owners. But, first, here are the top bad credit business loan lenders
- Est APR
- Min Credit Score
BlueVine
- 15.00 - 78.00%
- 600
OnDeck
- 11.00 - 61.90%
- 600
BlueVine
- 15.00 - 68.00%
- 530
- APR range
- Fees
- Terms
- Amounth
- Unemployment protection
Bank 1
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Bank 2
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Bank 3
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Note: We are highlithing BlueVine Line of Credit, OnDeck Line of Credit and BlueVine Online Term Loan.
Table of Contents
What Does It Mean to Have A Bad Credit Score?
A bad credit score, according to FICO, is anything below 670, basically a poor or fair credit score. This gets you a loan with most lenders, and the loan will come with the potential for higher limits and better loan terms.
However, the lowest score that could get a bad credit business loan is 530. Anything below that would be financial suicide. Bad credit loans are meant specifically for businesses whose owners have low credit scores.
Please note that when we mention credit scores here, we mean that of the business owner. However, some lenders may also consider that of the business, too. Just like personal credit scores, business scores have varying interpretations, too.
Further, note that most lenders only turn to your credit scores to gauge your loan risk if your business lacks some credit history.
Anything below 530 (Credit Score) could be consider financial suicide.
Can I Get a Business Loan With A Bad Credit Score?
Short answer – yes.
There are multiple options business owners with bad credit scores can explore. This is especially important for small businesses and start-ups that may lack robust revenue reports, credit profiles, or even assets to be used as security.
Traditional lenders are often the first option that comes to mind. Though not easy, banks may offer a business loan with bad credit. However, you’ll have to dig deeper into your pockets because of the higher interest rates.
Generally, approval for a business loan is pegged on 4 crucial things – the business’s (and owner’s) credit history, the business cash flow (usually the annual revenue), how long the company has existed, and the availability of assets to be offered as security.
Most lenders will also consider the reason behind your low credit score, and that will strongly influence their decision. For instance, if the reason behind your low credit score is such an unfortunate financial mess like bankruptcy or loan default, then most lenders will straight out reject your application.
Just so you can beat yourself up some more – being approved for a business loan would be much easier if you and your business had a strong credit history and strong steady revenue.
Not to worry, though. There are still multiple sources of financing you could explore, including the ones in the table above.
Requirements to Qualify
Like any regular loan product, requirements to qualify for a business loan with bad credit differ from one lender to another. But, before approaching any financial institution, ensure you are have attained the age of majority, usually 18 years and above.
You should also be a legal resident of the United States, possessing a national ID, valid driving license, or travel passport. Here are the few areas you should also check;
- Credit score – anything above 600 will put you in a better position to qualify for a loan with better terms, at least with most lenders tabled above. Find out what your potential lender’s credit requirements are and proceed to apply. You can improve your score by repaying your loans on time, paying your bills on time, leaving your unused credit accounts open, and being on the lookout for possible errors on your credit reports and correcting them accordingly.
- Annual revenue – find out your lender’s acceptable minimum yearly revenue for your business. It’s mostly all about numbers here. A business with good cash flow is always in a better position.
- Collateral – security is not a requirement for most bad credit business loan lenders. However, having one sets you for better loan products with lower interests and better loan terms.
- How long your business has been operational – Most lenders will consider how long you’ve been in business to offer you a loan. Businesses that have been operational for a long are more likely to qualify for bad credit loans with most lenders. They are more likely to repay their loans.
Please note that you’ll also need to be either the sole owner or at least own some shares in a business to be eligible for a bad credit business loan, or any business loan for that matter.
You’ll also need to verify your identity. And, for this, you’ll your legal documents, like we earlier mentioned. You’ll also need your social security number and utility bills as proof of your residential address.
What Do You Need to Know About Business Loans?
Business loans are an excellent source of finance for any business. They are available with both traditional lenders like banks and modern ones like online lenders. Here’s a summary of some of the critical aspects of business loans;
- Loan sources – banks, credit unions, and online lenders are your best shot. They tend to have more favorable terms and issue loans easily and faster.
- Interest rates – the interest rates of business loans can have an APR as low as 2% (in banks), and as high as 99% in other financial institutions. This differs from one lending institution to another and depends on the borrower in question.
- Loan use – business loans don’t have a specific use. As long as it’s anything tied to starting and running a business, you’ll be good to go. Therefore, you can use these funds to pay salaries, run day-to-day business operations, pay rent, sort out utility bills or expand your business
- Repayment terms – a business loan can have a repayment term of up to 20 years or more. This will vary depending on the exact business loan product you go for and the lender in question. Ensure you have the complete information about this before signing up for a loan.
Business loans you can get with bad credit
Ready to get your hands ‘dirty’? Here are some of the bad credit business loan options you could explore;
1. Term Loans
These loans are applied and received in a lump sum from banks. You then repay them within an agreed period. Here, you can choose between secured term loans and unsecured term loans.
For secured term loans, you’ll offer any of your valuable assets including your home or car as security. These are highly risky to the borrower who might lose his/her property should there be a breach of the lender agreement on his side.
However, they also attract the lowest interests and flexible loan terms since they are considered low-risk by lenders.
On the other hand, unsecured term loans attract the highest rates since they are considered high-risk by lenders.
2. Lines of Credit
These are types of revolving credit, just like the typical credit cards. They can come in handy when your main aim is to fill a cash flow gap in your business, usually operation costs.
Once approved, the lender wires the funds in a lump sum. The lender will set the maximum amount you can hit depending on your credit standing and repayment ability. But, that varies from one lender to another.
Please note that you’ll only pay interest on the amount you can borrow. Your repayments will either be weekly, biweekly, monthly, quarterly, or semi-annually depending on you and the lender in question.
3. Equipment Loans
Are you getting a new asset for your business? If you can’t afford to pay for it fully, then you could tap into equipment loans. Equipment loans can cover between 80 and 100% of the total equipment cost.
You’ll use the equipment you’re acquiring as collateral to secure your loan. This makes them one of the most straightforward business loan products you can apply for today. Traditional lenders such as banks are the most viable sources for these, especially if you or your business has a poor credit standing or lacks strong revenue reports.
Equipment loans are usually long-term. Depending on the equipment and lender in question, they have a repayment period of up to 25 years or more.
4. Invoice Financing
If your business is struggling to maintain a good cash flow because of late payments of goods and services by clients, then you could try financing. Here, you basically sell your unpaid invoices at a discount, usually 20%.
They then forward the remaining 80% and follow up on the customer themselves. However, please note that invoice financing will attract interest till the whole amount owed is repaid. That not only make them an expensive choice but a risky one, too.
The fees can quickly accumulate, placing you in an even worse financial situation than you were in before.
5. Merchant Cash Advances
Here, you take a loan against your future projected sales. You’ll then repay the principal amount plus the fees on your daily or weekly debit and credit card transactions. This is also a quicker source of funds to fill your cash flow gaps.
Like in other loans, low-risk borrowers will be charged lower fees and work with better loan terms than their high-risk counterparts.
Though a good source of business financing, merchant cash advances are highly addictive and can come with lots of negative long-term financial implications that can bring a small business down to its knees in no time.
An alternative is an equipment loan, which can cover between 80 and 100% of the total equipment cost.
How Much Can You Borrow?
That varies from one lender to another. You can borrow up to $5 million with our chosen lenders above.
How much you can borrow will, first, depending on the lender in question. What is your lender’s loan range? What is the highest and the lowest they offer, and on what terms? Check that up before you commit.
Your credit profile will also determine your loan limit. A business owner with bad and poor credit scores are more likely to get lower limits than those with higher scores.
Having a valuable asset you can use as collateral will also give you an upper hand. That automatically moves you from a high-risk to a low-risk borrower, regardless of your credit score. The lender has a way to recover the loan amount should you fail on repayments.
Tips for Choosing a Lender
Seeking financing with a bad credit score will mean having limited options. However, that doesn’t mean you’ll go with any available alternative. We recommend waiting till you boost your credit score instead of going for a lender with unfavorable terms.
Choosing the wrong lender will mean ending up with the faulty loan product that’ll likely place you in a debt cycle you might find hard recovering from. You, therefore, want to take your time and choose a suitable lender.
So, who’s a suitable lender? Let’s make a checklist;
- Rates – What does your lender charge? Is it the industry standard? Are there extra fees? This is the most important aspect you want to consider before anything else. Go for a lender with the lowest rates.
- User reviews – the reputation of a lender is also as crucial. Check out what other borrowers’ past experiences with the lender have been.
- Flexibility – go for a lender with flexible repayment terms. Check out what their policies are, and where possible, negotiate for even better terms.
- Loan limit – how much are you looking for? What is the highest amount your potential lender can offer? Go for a lender who gives you enough money, at least the much you need to sustain your business at the moment.
How to Boost Your Bad Credit Score
Having a high credit score will not only guarantee you loan opportunities with multiple lenders but will also set you up for incredible loan products with favorable repayment terms. If you have a poor credit score, don’t panic. Here’s how you can boost it;
- Repay your past loans – ensure you regularly service all your past loans. Do that on time. Every repayment will have the lender positively update your credit reports with financial agencies, further pushing your score.
- Pay your bills on time – ensure your phone, rent, utility bills, and other monthly bills are paid on time. A single late repayment could push down your score by up to 50 points.
- Avoid taking more loans – unless it’s necessary, don’t take in any new loans. Doing that will only bury you deep into a debt cycle; you’ll have a hard time recovering from.
- Credit reports – regularly request your credit report from the reporting agencies. Watch out for any errors, and should you find any, notify the respective reporting agency immediately for correction.
Frequently Asked Questions (FAQ)
Yes, multiple lenders could offer you business loans with bad credit. However, you’ll part with high interests and unfavorable repayment terms.
A credit score above 600 will get you multiple loan products from different lenders. Anything below that will limit your options and get you higher interests and unfavorable terms.
You can get a business loan with bad credit by offering collateral, getting a personal guarantee, or going for a lower amount.
Banks and credit unions are the most preferred. They tend to offer better terms and lower rates. Other alternatives such as online lenders could also work. They are fast and convenient but charge very interests.
That varies from one lender to another. However, a score of above 640 is the most preferred by most lenders.
