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How to Get a Business Line of Credit with a Bad Credit Score
March 06, 2019
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How to Get a Business Line of Credit with a Bad Credit Score

A business line of credit is a flexible funding option that’s great for smoothing out cash flow. However, it’s often difficult to get approved for a line of credit, especially if your credit score is low. Fortunately, although it’s difficult to get approved, it isn’t impossible if you make a plan to build your credit and stick to it.

In addition, if you have a strong business, some lenders may be willing to look past your bad credit score. Either way, to help you improve your chances of qualifying, this post will provide several tips that’ll help you apply for a business line of credit.

Four Tips for Qualify for a Business Line of Credit (Even If Your Credit Score Is Low)

1. Be Honest

There’s no quicker way to ruin your chances of qualifying for financing than to be dishonest with your lender. If you have bad credit, you won’t be able to hide it from your lender, so don’t try.

Instead, be upfront and honest about your credit history. Ask your lender if there’s anything you can do to strengthen your application. While honesty won’t necessarily get you approved, dishonesty will ensure your application is rejected.

2. Improve Your Business Credit Score

Since business credit and personal credit aren’t linked, you can build a strong business credit score even if you have poor personal credit. However, to do so, you’ll need to incorporate or form a limited liability company (LLC), obtain a federal employer identification number (EIN), open a business bank account, and register with Dun and Bradstreet to get a D-U-N-S Number.

Doing those things will establish an identity for your business that credit bureaus will then use to create credit reports for it. Once that’s done, you’ll need to pay on time and in-full and monitor your credit reports for any mistakes. Keep in mind that it takes time to build up your business credit score but doing so will help you get approved for financing even if you have bad personal credit.

3. Explore Alternative Lenders and Financing Options

Don’t give up after a single — or even several — rejections, especially if you haven’t tried different types of lenders. Relative to larger, established banks such as Bank of America, online lenders tend to have less stringent qualification criteria. That said, the downside is that you may have to settle for a smaller line of credit. Regardless, it’ll be well worth your time to evaluate multiple types of lenders to find the best fit for your business.

4. Keep Working on Your Personal Credit Score

While it may not be linked to your business credit score, lenders will look at your personal credit history when they’re evaluating you for a business line of credit. That’s why it’ll always be important to work on improving your credit score.

According to myFICO, the five factors (and their relative weights) that affect your personal credit are as follows:

  • Payment History – 35 percent
  • Amounts Owed – 30 percent
  • Length of Credit History – 15 percent
  • Credit Mix – 10 percent
  • New Credit – 10 percent

Pay your bills on time, reduce your amounts owed, keep old accounts open, and eliminate risky credit to improve on every one of these factors. Ultimately, that will give you the best chance of improving your credit score over the long term.

Conclusion: Managing Expectations

As you’ve likely already discovered, getting a business line of credit with a bad credit score isn’t easy. Plus, even if you qualify, you may have to settle for a smaller amount than you hoped for. To give yourself the best chance of qualifying for the line of credit you want, be transparent with your lender and evaluate all your options.

If you can’t find the right fit for your business, don’t force it if you don’t absolutely have to. Work on building your business and credit history by keeping your financial health in check and wait on applying until you’ve built a strong credit score.

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].