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How to Get Approved for a Bad Credit Business Loan
July 29, 2021
How to get approved for a bad credit business loan

How to Get Approved for a Bad Credit Business Loan

If your business is struggling with a poor credit score, you might believe that it is impossible to be approved for business financing.

In reality, you can still land a small business loan with bad credit. To do this, your application must be organized and you’ll need to meet the lender’s other eligibility requirements. By being prepared and transparent throughout the loan application process, the lender will be more likely to view your business as a trustworthy entity worth investing in.

To increase your chances of qualifying for a bad credit business loan, follow the recommendations featured in this blog post! Although it can be challenging to get approved for business funding as a small business owner with bad credit, this post proves that it’s possible.

How to Qualify for Bad Credit Business Financing:

1. Know The Amount of Annual Revenue That Your Business Generates

A small business lender could likely review your financial information to find out the answer to this question, but you should have an idea of this number anyway.

By knowing your business’s finances inside and out, you’re setting yourself up for a better chance of landing a bad credit business loan. Regular monthly deposits into your bank account show that your business has consistent, reliable income to help pay off your loan amount. If a lender sees that you meet this requirement, this will help your case!

2. Be Up Front With the Lender About Any Outstanding Loans or Debt

If you know there are weaknesses in your application, like a low credit score, bring them up first. Lay everything out on the table so you appear honest and trustworthy. Similarly, you should have some reasoning behind any long-term or ongoing debts.

If you’re behind on these payments, the bank or lender won’t look favorably at your application. Still, the best thing you can do is ensure that you have a plan for paying off the debt in a responsible manner, and relay this to your lender in a succinct way.

3. Provide Your Personal Credit Score

Some financing lenders may not care about this aspect of your business loan application. Others will require it, especially if your business credit score is low. That’s why you should review your credit report prior to submitting an application for business funding with bad credit.

If you have a decent personal credit score, add it to your business loan application, because it could boost your creditworthiness. This goes along with our next point, particularly if you have a lower credit score.
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4. Find a Business Partner Who Has Excellent Personal Credit

The U.S. Small Business Association recommends having a business partner with good personal credit. If you don’t have a high personal credit score, it may be time to consider bringing in outside partners to split profits and increase investments. If you can recruit a partner who will vouch for the company as an executive or co-founder, you can score a larger loan or get approved for a lower interest rate.

5. Explain How You’ll Use Funding to Grow Your Business

Your plan for how you’ll utilize a business loan is as important as your qualifications for the business line of credit or loan.

Most financing lenders will want to know how you’re going to utilize the increased cash flow, and so they can determine if you’ll still be able to generate enough revenue to meet the repayment terms.

If you can’t convince the bank or lender why and how your use of the funds will boost revenues for you, you’re going to have a tough time getting approved. We suggest having a clear explanation of what the primary uses of the loan will be, secondary expenses, and what you plan to do with any leftover cash.

6. Highlight Any Collateral or Physical Assets

As with most lending institutions, collateral is key in landing a business loan with good terms or a line of credit with a higher credit limit.

Examples of collateral that you could submit in order to secure a loan include:

  • Equipment
  • Inventory
  • Real Estate
  • Other high-value physical items

Include an appraised valuation amount for each item, because this will help speed up the application process. If you have significant collateral, the lender might be able to give you a decent term and amount, despite your low credit score.

7. List Unpaid Invoices as Collateral

If you’re expecting a big check from a customer, but their payment is delayed, the bank can take this into account and loan you money based on that guarantee. Often, the business financing lender will only issue the same amount as your unpaid invoices, but you can negotiate for a higher amount if needed.

8. Explain Why a Business Credit Card Won’t Suffice

Like our previous recommendation, you need to exhibit that you’ve considered other business financing options for additional working capital. In some situations, you could get approved for a loan if you can prove that you’ve exhausted other traditional funding options.

If you’re able to, wait for a cash influx, use a credit card, or focus on boosting your credit score over time. That way, you can apply for a small business loan once you have an improved score.

Next Steps: Business Loans for Bad Credit Borrowers Are Available

It never hurts to turn in an extremely polished application and bring up pain points before the lender does. Banks are notoriously difficult to convince, and not all alternative lenders work with businesses with poor credit.

However, if you’ve done your due diligence, you have a much better chance of getting approved for a business loan, even if your credit score is bad.

Editor’s Note: This post was updated for accuracy and comprehensiveness in July 2021.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].