How to Get a Business Loan with Bad Credit
In this blog post, we’ll offer tips on how to get a business loan with bad credit, in addition to a few ways to build business credit and improve your chances of getting approved. Let’s get started, so that your business can get the financing it needs!
7 Ways to Get a Small Business Loan with Bad Credit
1. Research Credit Score Requirements
In the preliminary stages, conduct research and determine which lenders provide loans for small business owners with bad credit. This will be especially important if your credit score is under 500. Some lenders are relatively lenient on this, but if your score is less-than 500, it may make a lender apprehensive about working with you.
Don’t waste your time applying with a lender if you don’t meet their credit score requirements. Instead, focus on ways to build business credit, and apply for a business loan once your score has improved. If you’re in a crunch and need additional working capital as soon as possible, try and find a lender with a lower credit score minimum.
2. Have a Clear Business Plan
When applying for small business loans with a low credit score, it will be helpful to have an organized business plan that you can share with your lender. This will likely be helpful in convincing them that you can handle repaying a loan. Be ready to share your monthly sales amount, and hopefully you’ll be able to show improvement in your business’s finances. Even if your credit score isn’t stellar, a lender may be more apt to work with you if they can see that your finances are on an upwards growth trajectory.
3. Be Prepared to Receive a Higher Rate
When applying for working capital from a lender, you’ll need to consider the rate they are providing you with. If your business has a low credit score, it may result in you receiving a higher rate than a business with an above average credit score. This is because the lender will likely assess you as a higher risk customer; so, consider whether your business will be able to responsibly pay back the amount.
4. Build Business Credit
If you’re serious about getting a business loan despite your bad credit score, the answer might be simple; try and improve your credit score prior to applying for working capital. First, you’ll need to examine your business credit report so that you can see your score and determine if there are any discrepancies. If there are, you’ll need to report these issues to all credit bureaus, so that your score can be adjusted.
It’s important to realize that raising your score isn’t something you can achieve overnight. Getting a better score will require you to form responsible financial habits, and then prove this to credit bureaus over time. This can be frustrating if you need a loan as soon as possible, but it may be your best bet. If you’re not in a rush to receive financing, you should focus on raising your score, and then focus on applying. Make sure to keep reading, because #7 features a simple way to help build your business’s credit.
5. Pursue a Merchant Cash Advance
If you’re interested in a small business loan, but have a low credit score, you may be better off applying for a merchant cash advance. A merchant cash advance is a type of business financing, but it isn’t a loan. When you receive a cash advance, you’ll receive lump sum financing, in exchange for the provider receiving a percentage of your personal credit card sales. So, even if your business’s credit score is below average, if you have consistent credit card sales you could still qualify for this product.
During the merchant cash advance application process, the financing provider will be looking for a large number of deposits in small amounts. Therefore, your poor credit score could be overlooked if you meet this requirement.
6. Ask Family or Friends for Money
If you’re in a bind and need financing immediately to keep your business up-and-running, consider asking a friend or family for some cash. While we don’t recommend taking a loan from a loved one, if you know someone who would be generous enough to give you money to get by until you can apply for working capital, you can work to improve your business credit in the meantime. Then, once your credit score increases, you can apply for a business loan from a lender!
7. Pay Bills on Time
One of the easiest ways to improve your credit score is to pay your bills on or before their due date. Paying bills late can be a contributing factor to why you have a low credit score, so make this a priority moving forward. Below, you’ll find a few ways that you can ensure that you pay your bills on-time.
- Set a monthly calendar reminder: If you frequently forget to meet bill deadlines, we suggest setting up calendar notifications that will remind you as the due date approaches.
- Refine your budget: If you’re paying bills after their deadlines because you’re short on cash, you should improve your business’s budget going forward so that you can afford to pay for monthly expenses.
- Utilize apps: There are numerous financial apps that help business owners pay and manage their bills. If you’re interested in this type of technology, check out apps such as Mint, TimelyBills, and Bills Monitor.
Is Your Business Ready to Improve Your Score and Receive a Loan?
Hopefully this post has provided you with helpful ideas on how to get a business loan with bad credit! Don’t get discouraged when going through this process, there are lenders out there who will provide loans for small business owners with bad credit.
If you’ve received a bad credit business loan or have successfully raised your score and been able to get approved for financing, share your top tips with us in the comment section below!
Editor’s Note: This post was updated for accuracy and comprehensiveness in September 2018.
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.