How to Get Approved for a Business Loan with No Credit Check
The good news is that you can still get approved for a small business loan without a credit history. Several small business lenders offer business loans with no credit check and are willing to take a chance on those with no credit history or limited credit.
This post will explain how business owners with no credit history can navigate the application process and ultimately get approved for business funding.
What Are Business Loans with No Credit Check?
No credit business loans are what they sound like; if you apply for one, a business lender may approve you without a credit check. Due to this, business owners with poor business or personal credit often benefit from this funding option.
While traditional business lenders will look at your credit, capital, character, capacity, and conditions (the five c’s), business loans that don’t require a credit check are different. Online lenders who offer them will look beyond your business and personal credit scores to determine how likely you are to pay back the loan amount you borrow in full.
Types of Business Loans with No Credit Check
Not all business loans with no credit check are created equal. In fact, there are a variety of business funding options that you may choose from, including:
- Term Loans: Also known as installment loans, term loans are a lump sum of money provided by financing lenders. As a borrower, you’ll pay it back with interest via monthly payments over an agreed-upon time frame or term. Borrowing amounts, interest rates, and repayment terms vary significantly by business loan lender.
- Lines of Credit: Business lines of credit are similar to business credit cards. If you apply for this type of business financing, you’ll be able to withdraw as much or as little as you’d like up to a set credit limit. Therefore, you’ll pay back the amount you borrow plus interest.
- Equipment Loans: If you need to purchase equipment like a crane, oven, or fax machine for your business, equipment loans are ideal. This type of loan can help small business owners cover the cost of equipment. With an equipment loan, your equipment will serve as collateral. Therefore, if you default on your small business loan, the business lender will seize it.
- Accounts Receivable Financing: When you pursue accounts receivable financing, you’ll receive a specific amount of money for your unpaid invoices. The lender will collect payment from your customers and pay you the remaining invoice amounts minus any fees they may charge. This type of funding is similar to invoice factoring.
- Merchant Cash Advances: Typically, cash advance providers provide funding to applicants that receive frequent credit card transactions. They often aren’t as concerned with the business owner’s credit score.
It’s important to note that although some lenders provide these funding options and don’t require a credit check, other lenders will still want to review your credit score. Before applying, you should research the lenders’ requirements. Even if they don’t require a credit check, they may want to review bank account statements, have you sign a personal guarantee, or provide other financial information.
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When Do Small Business Loans with No Credit Checks Make Sense?
There are a few situations in which a no credit check business loan is a good funding option.
If you have bad credit or own a startup business with no credit history, applying for a no credit check business loan could save you significant time and energy on getting rejected by other business lenders.
Also, if you plan to apply for a mortgage, auto loan, or other business financing options soon, a short-term loan without a credit check can help you out. Here’s why: too many inquiries on your credit report may take a toll on your score, lowering your chances of getting approved for a traditional business loan with favorable terms.
Fortunately, most financing lenders conduct a soft credit pull during the prequalification process. The soft credit pull won’t affect your credit score, and you can get an idea of the type of offer you’ll receive from a lender. A hard credit inquiry, which will impact your score, will be performed later once you agree to take out the loan.
How Do I Get a Small Business Loan with No Credit Check?
If you decide that you’d like to pursue a no credit check small business loan, you must conduct extensive research.
While business loans that don’t require a credit check exist, they aren’t popular. Since only some alternative lenders offer these products, you’ll need to shop around to find viable loan options.
Most business financing lenders will require you to provide a business plan so that they can learn about your business and how their funding may help.
In addition, they might also ask you to put up business collateral so that they can reduce their risk of lending you money. If you don’t repay your loan amount, the lender will repossess your collateral to cover the damages. Before submitting collateral, you should be confident that you can repay the loan. If you aren’t sure you can meet the terms, you could risk losing valuable collateral, such as equipment, inventory, or real estate.
If you do get approved for a no credit check business loan, you may have to pay a higher interest rate. A higher interest rate can cost you thousands of extra dollars on your working capital loan, so it’s important to budget accordingly.
If you don’t need business funding right away, it may be in your best interest to build or improve your credit before applying for a traditional loan that requires a credit check. This way, you may secure a loan with a lower interest rate and better terms. You’ll also open the doors to receive loan approval in the future, which could help you further build your business.
Conclusion: Meet Your Business Goals with a No Credit Check Business Loan
A small business loan that doesn’t require a credit check can be a lifesaver if you need to increase your business’s cash flow but have poor credit or no credit. Many business owners struggle to make ends meet without additional financing, so it’s certainly worth considering.
However, it may also cost you a lot more money than if you were to apply for a traditional business loan with a traditional structure instead. Therefore, you should weigh the pros and cons of this type of financing and determine whether waiting to apply for a small business loan that involves a credit check is worth it.
For more information about receiving a business loan with bad credit or limited credit, check out these resources:
- How to Get a Small Business Loan With Bad Credit
- How to Get Equipment Financing With a Bad Credit Score
Editor’s Note: This post was updated for accuracy and comprehensiveness in May 2022.
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.