The Pros and Cons of Getting a Bad Credit Business Loan
In this post, we’ll cover the pros and cons of getting a business loan when you have bad credit. Although we can’t give you all the answers, these tips will help you determine if a bad credit loan is the right option for you.
The Pros of Getting a Loan When You Have Bad Credit
Receiving a loan when you have bad credit has many benefits that most people don’t know about. These pros can go a long way towards turning your bad credit around!
- Fast cash influx: Bank loans are notorious for having a lengthy application period. Luckily, when applying through an alternative lender, you could receive a bad credit business loan within a week or less!
- You can repair your credit: Lenders often report bad credit loan activity to credit bureaus. If you’re consistently making payments on time, your business’s credit score will probably increase as a result (35 percent of your FICO score is based on your payment history).
- You have options: Putting your assets up for collateral isn’t always required to get a bad credit business loan. Due to this, you should investigate unsecured business loans. Not only are they versatile in types of options, but you might not need to put up collateral in order to get approved.
The Cons of Getting a Loan When You Have Bad Credit
Even though you likely want funding to grow your business, there are some downsides to consider when you’re searching for a loan while having less-than-stellar credit. Here are a few cons to keep in mind before applying for a bad credit business loan.
- Constant fees: Make sure to review all paperwork, because just like personal loans, bad credit business loans could come with considerable fees. Some examples are late payment fees, a personal check fee, and of course, a charge if your payment doesn’t clear.
- High interest rates: Sometimes, bad credit loan lenders can have high interest rates because they know that your options are limited. For example, with good credit, you may have a 6 percent APR, while with bad credit, your APR could be closer to 30 percent.
- Automatic withdrawals: To ensure that you repay your loan, it is possible that your lender could require automatic withdrawal dates. This means that your payments will be withdrawn daily, weekly, or monthly. This can be stressful, since you’ll always have to ensure that you have an adequate amount in your bank account to avoid overdraft fees.
- Collateral could be required: As we previously mentioned, you may have to put up collateral to get approved for a bad credit business loan. Exactly how much collateral will vary depending on your business’s credit score, financial statements, history with the lender, and more. Due to this, it’s a good idea to have at least one robust example of collateral on your application.
Securing a business loan with bad credit can be an arduous task, but it’s often the first step that many business owners take in improving their situation. By reading this, you are being proactive in selecting the best option for your operations.
We’ve outlined the pros and cons for bad credit business loans, but you should consider making your own pros and cons list specific to your situation. By doing your due diligence and researching financing options, you’ll set yourself up for success.
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.