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How to Get a Business Loan with Bad Credit
July 23, 2019
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How to Get a Business Loan with Bad Credit

As you probably already know, maintaining an above average credit score is immensely important while running a small business. This can be especially pivotal when you’re in need of additional working capital, and are considering applying for a small business loan from a lender. Unfortunately, if your credit score is low, it can make it very challenging to get approved for financing.

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 Lender’s 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 lenders apprehensive about working with you.

Don’t waste your time applying with a lender if you don’t meet their minimum credit score requirements. Instead, focus on ways to build business creditand 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. Create 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 the repayment terms.

In addition, you should be ready to share your monthly sales amount. Hopefully you’ll be able to show improvement in your business’s finances over time. 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 upward growth trajectory.

Another section that you should include in your business plan is information on how you plan to use the loan. For instance, perhaps you’re planning on using a loan to purchase a new piece of equipment. Outline this in your business plan and explain how using this loan for this cost will benefit your business’s finances in the long-term.

In the equipment example, you could explain how once you have updated equipment, you’ll be able to service more customers (and in turn earn more sales). This could convince a lender to work with you, even if you don’t have an excellent credit score.

3. Be Prepared to Receive a Higher Rate

When applying for working capital from a lender, you’ll need to consider the rate they’re 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.

Due to this, you should consider whether your business will be able to responsibly pay back the loan amount. If you don’t think you’ll be able to afford loan payments while also keeping your business operational, it might be better if you wait on taking out a loan.

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4. Take Steps to Improve Your Credit Score

If you’re serious about getting a business loan despite your bad credit score, the answer is simple: improve your credit score prior to applying. 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 healthy financial habits, and then prove your financial responsibility 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 small business loan options but have a low personal 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 credit score is below average, if you have consistent business 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 immediate financing to keep your business up-and-running, consider asking a friend or family for some cash.

We don’t recommend taking a loan from a loved one, but if you know someone who’s willing to give you money to get by until you can apply for working capital, you can improve your business credit in the meantime. Then, once your credit score increases, you can apply for a business loan or line of credit from an alternative lender!

7. Pay Your 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 flow, 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 MintTimelyBills, and Bills Monitor.

By trying these tips, it’ll be easy for you to pay your bills by their due dates, and in turn earn a good credit score.

Business Loans for Poor Credit: Qualifying is Possible

Hopefully this post has provided you with helpful ideas on how to business loan with bad personal credit or business 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 history.

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 July 2019.

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].