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How to Get a Business Line of Credit with Bad Credit
October 22, 2019
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How to Get a Business Line of Credit with Bad Credit

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 can be difficult to get approved for, it isn’t impossible if you plan to build your credit and stick to it.

In addition, if the rest of your business is in good standing, 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.

4 Tips to Help You Qualify for a Business Line of Credit (Even If You Have Poor Credit)

1. Be Honest with Your Lender

There’s no quicker way to ruin your chances of qualifying for additional working capital 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. Before they qualify you, they’ll need to run a credit check, and will inevitably find out your scores.

Instead, be honest about your credit history, and ask your lender if there’s anything you can do to strengthen your application. They may be willing to provide you with financing despite your poor credit, but you may receive higher interest rates and a smaller credit line amount.

While honesty won’t necessarily get you approved, dishonesty will ensure your application is rejected. Don’t make this mistake when you pursue financing!

2. Take Steps to 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 use to create credit reports for your company. Once that’s done, you’ll need to pay bills on time and in-full and monitor your credit reports for any mistakes. In addition, you should try to pay off your business credit card balances.

Keep in mind that it takes time to build your business credit score but doing so will help you get approved for financing even if you have bad personal credit.

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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 credit limit. 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 Improving 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

There are numerous ways that you can improve your personal credit. To start, make a commitment to pay your bills on-time. This includes credit card bills, rent payments, and any other financial responsibility that you may have a balance for.

Another way to improve personal credit is to reduce your loan amounts owed. If you’ve taken out personal term loans, it’s important to follow the repayment term given you by the lender. By doing this, you can fulfill your obligations and avoid damage to your credit score. Like being late on small business loan payments, taking too long to repay a personal loan can be detrimental to your credit.

In addition to the tips mentioned above, you should try to keep old accounts open, and eliminate risky credit to improve your credit score. Ultimately, forming healthy financial habits will give you the best chance of building your credit score in the long term.

Conclusion: A Bad Credit Line of Credit Might Be a Great Financing Option for You!

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. Unless you have short term financing needs, you may be able to wait on taking out a credit line.

In the meantime, work on building your business, improve your credit history by keeping your financial health in check, and wait on applying until you have a good credit score.

Have you taken out a line of credit for your business, despite poor credit history? Tell us about your experience applying and utilizing this financing in the comment section below.

Editor’s Note: This post was updated for accuracy and comprehensiveness in October 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].