Not all businesses have good credit ratings. Your company might struggle due to some monetary losses or penalties. You might also have a poor rating due to having no credit history. You can still find business loans for bad credit to help you get your business running, but there are various concerns to note surrounding these loans.
A bad credit loan will cost more on average, plus it’s harder for you to apply for one. But it is possible to receive the funding your business needs if you look around for help.
Understanding Bad Credit and How It Influences Business Loans
What Is Bad Credit?
Bad credit refers to cases where one’s credit rating is poor. The measure means that a person or isn’t in the best financial health, as that entity might struggle to manage one’s assets and expenses.
Every has a different idea of what can be interpreted as bad credit. The Fair, Isaac and Company or FICO credit analytics will review entities with a credit score range from 300 to 850. Anyone with a credit score of 600 or less will have poor or fair credit. Those with higher credit ratings will be more likely to qualify for loans, plus they might receive better rates.
Lenders use credit scores to analyze the potential risk of allowing someone to borrow money. While someone with a higher rating will be more likely to get a loan with good terms, someone with poor credit could be rejected for a loan. Those with poor credit who do get accepted will often spend extra on interest charges and other fees.
What Causes a Business to Have a Bad Credit Rating?
There are many reasons why a business may have a poor credit rating:
- A defaults on debts by going 90 days or more without making payments.
- Some unpaid debts might go into collections.
- A business could also have excess debts to various vendors.
- Some properties might have been repossessed due to an inability to pay them off.
- A might also utilize more of its credit than necessary. The business might be borrowing near the maximum on its credit lines.
What Challenges Do Borrowers With Bad Credit Have When Finding Loans?
The struggles borrowers often have when looking for bad credit business loans are plentiful. Here are some of the concerns that many prospective borrowers often run into:
- Some lenders won’t provide borrowers with loans unless they meet specific credit score criteria. Lenders often have minimum score thresholds of 550 to 625.
- The interest charges on a bad credit loan will be higher. Lenders can charge higher business loan rates because they see those bad credit borrowers are high-risk clients.
- Some down payments and other security measures may be necessary for confirming a borrower’s ability to pay off a loan.
- Additional fees might apply to some loans, including extra charges for originating a loan.
- A business might also have to provide additional documentation before obtaining a loan. These documents can include extended amounts of financial details and reports to confirm a business’ potential to earn the money necessary for covering the loan.
Is Bad Credit the Same As No Credit?
Having bad credit is not the same as if you didn’t have a credit history. While many businesses might not get accepted for loans with no credit, they can at least spend a few years working toward building up that credit. A bad credit business will have an easier time finding places that offer loans, but there might still be places that won’t accept such a company due to its credit score being too low. Whatever the case, anyone with bad or no credit will equally have to go forward and work toward building a stronger credit profile.
The Three Best Choices For Bad Credit Business Loans
You don’t have to struggle when looking for bad credit business loans, as there are many s available to help you with your loan. Here are three of the best choices to find:
OnDeck
OnDeck is your first choice when finding business loans for bad credit. OnDeck provides same-day lending services where you can get a term loan of up to $250,000, plus you can use repayment terms of up to 24 months on your loan.
You can also contact OnDeck if you’re searching for a line of credit instead of a term loan. This revolving credit line of up to $100,000 lets you access cash as necessary, plus you only have to pay interest on what you borrow.
OnDeck supports businesses in more than 700 industries, plus the team can directly move your funds to your bank account.
- Your business only needs to have been around for a year to qualify.
- Loans are available to businesses with scores as low as 625.
- You can choose between daily or weekly payments.
- The team does not conduct hard credit pulls, meaning you can see if you’re eligible for a loan without impacting your credit score.
Taycor Financial
Taycor Financial provides support for small and medium-sized businesses alike. Taycor offers term lengths of up to 84 months, plus you can qualify for up to $2 million in funds in your loan.
The is open to providing help for businesses with bad credit. Taycor requires a minimum credit score of 550, plus there are no revenue restrictions or minimums for how long a company has been around. This point means you could request a loan even if you don’t have any credit history.
You won’t require too much documentation when getting a loan from Taycor. You will require some tax returns and bank statements, and you’ll require an AR Aging Report if you’re using an accounts receivable factoring service.
- Loans are often available in 24 hours or less.
- Taycor is transparent on fees. An origination fee of up to 5% is necessary, but Taycor will inform you before agreeing to a loan.
- Daily and monthly payments are available.
- Taycor offers equipment financing, so you can finance your equipment costs without having to make a down payment.
- A 90-day deferment on payments is available for some borrowers. The period gives you time to collect the funds necessary to complete loan payments.
Biz2Credit
Biz2Credit has flexible terms for what you can get from a bad credit business loan. You can find loans from $25,000 to $500,000 at Biz2Credit. You can also use a payment period from 12 to 36 months.
Biz2Credit provides loans to businesses with credit scores of 575 or higher. Businesses must also have been in operation for at least the last 18 months.
- All clients will reach a dedicated funding specialist to help recognize what loans they can utilize based on current credit scores.
- The team at Biz2Credit utilizes a network of financial s to help raise funds for loans. This feature helps Biz2Credit get loans ready in hours.
- Businesses that get revenues of about $10,000 each month can qualify for loans, but Biz2Credit can help clients find different options if they haven’t reached that total.
Tips For Obtaining a Business Loan with Bad Credit
The options for borrowing money when you have bad credit are plentiful, but you can’t assume you will always be accepted for a loan. You can do a few things to improve your chances of getting a business loan.
Improving Your Credit Score
You’ll find better business loan rates if you work towards improving your credit score. It can take months for you to boost your score to where you can get a loan with someone, but the timing is necessary for showing your ability to handle money.
Here are some things your business can do to improve its chances of getting a loan and finding a better rate:
- Make sure you cover any past expenses your business holds. Get rid of any arrears by paying them off as soon as possible.
- Complete more on-time payments to reduce interest charges and late fees on whatever expenses you hold.
- Keep from borrowing more on whatever lines of credit you have than necessary. For example, if you have a business credit card, keep from spending more than a third of the credit line you have.
- Avoid closing any dormant accounts you don’t use. You’ll need to keep enough credit open to show you’re capable of handling money well enough.
- Try not to apply for any new funding options before getting the loan you require. Further applications might result in hard pulls on your credit history. Those extra inquiries might harm your credit score.
- Review your credit score each year to see if there are errors. You can file a complaint where you need to get an error fixed if you see something. A successful correction can help you improve your credit score.
Providing Collateral or a Guarantee
One option for finding a bad credit business loan is to provide collateral on your loan. You can secure your loan by using a valuable asset as collateral. This point means you will surrender the collateral if you are unable to pay off the loan. A lender will be more willing to accept you because you’re reducing the possible risk the lender would incur.
You can also provide a personal guarantee to mitigate the risk. A guarantee is a binding contract where you will state you will be personally responsible for paying off the loan if it defaults. You would use your personal assets to cover the loan in this situation. The lender will again feel that the risk of giving you a loan will become minimal.
Be sure when using this part of the plan that you understand what you’re doing with your assets. You will risk losing those assets if you can’t cover the loan, so be cautious when choosing your collateral or establishing a guarantee.
Establish a Business Plan
You’ll need to prepare a comprehensive business plan to improve your chances of getting a loan. You can use a few steps to help you get there:
- Provide an executive summary of what you have been doing and how you aim to get your business running.
- List a market analysis illustrating your current industry and how you plan on performing.
- Your business plan can list your company positions and other organizational points. This listing will show that you are committed to operating your business.
- Mention the service or product you are offering. Explain how what you are providing will have some value to clients. You can also list your target audience here.
- You can also include your marketing and sales plans for your business, including where you will market and what people you want to reach the most.
- List all financial projections in your business, including plans for income statements, cash flow statements, and balance sheets. The data should be realistic and based on how well your has performed.
- You’ll end your business plan with a funding request specifying what you will require based on everything you have listed.
By providing all these details, you will show a lender that you are ready to complete payments for your loan. The lender will also have a greater understanding of what your business offers.
Exploring Alternative Lenders and Non-Traditional Financing Options
You can also consider other lending options when finding business loans for bad credit. Here are a few things you can explore when finding a funding plan:
- A business line of credit can work like a credit card because you’ll only have to pay for whatever funds you take out of your line.
- Invoice factoring entails selling your unpaid invoices to a factoring company. Those invoices will secure your loan, so you’ll have an easier time getting the cash you need.
- Merchant cash advances are notable financing options for businesses with bad credit. You can receive a payment you will reimburse through automatic deductions from your card sales.
Borrowing Costs, Business Loan Rates, and Other Considerations
While it’s possible for you to get a business loan with bad credit, you’ll still have to pay more for the service. You’ll be subject to a higher loan rate and more fees.
A typical APR for a borrower with good credit can go below 10%. But for a borrower with bad credit, that value can rise well over 10%. You could pay at least 15% APR for your loan.
Some rates might even be close to what you’d get from an unsecured credit card. These rates can go from 20 to 30%.
Some additional fees may also apply when you handle a loan. These extra fees include late fees, origination charges, and administration costs.
You might also require a higher down payment than usual. While a good credit loan can have a small down payment or even none at all, a bad credit loan often requires a down payment of at least 10% of the value of that loan. A lender will want to confirm you have enough assets to where you can pay the loan as necessary.
The Differences Between Traditional Loans and Bad Credit Business Loans
There are many differences to spot when looking at good and bad credit loans:
- Traditional loans are easier for people to apply for, as they won’t require as many financial details. A bad credit loan often requires an applicant to submit a business plan.
- Good credit loans may also feature adjustable rates that can improve if your credit score increases. You might not find this feature in some bad credit loans.
- Lenders often have rules for how much credit a borrower should have depending on certain industries. Businesses with bad credit might not qualify if they are in particular industries. You can check a lender to see what the rules are for your field when applying.
- The timeframe for when you can get your money may also vary. Not all bad credit lenders are capable of getting your funds out in 24 hours like good credit loan providers can.
Conclusion
Business loans for bad credit are easy to find through many lenders. You’ll have many options to discover as you search for support even when you’re dealing with financial struggles. But be sure when applying that you look around well while providing enough info on your business to improve your chances of being accepted. Remember that a lender will see you as a high-risk client.
Be sure to contact us at the CapCompass for further details on how you can find a proper loan even if your business has a poor credit history.
People also ask:
How do you apply for a business loan with bad credit?
To apply for a business loan, you can contact a lender and ask about loan services. You may get in touch with a representative who can assist you in the application process. You’ll then need to provide a business plan and whatever financial documents are necessary to the lender. These documents should be recent and convey your ability to earn money. You can also provide a statement on how much you are requesting from your lender.