Most lenders differ on the cut off point for what is considered a bad credit score, but the general feeling is that anything below 620 points on the FICO rating is BAD.
This tag then becomes an immovable obstacle when it comes to applying for business credit services. Banks especially have complicated the process by making it really hard – though not impossible – to access business loans when you have a bad credit score.
Small and medium enterprises face the brunt of this issue as lenders consider not just their businesses cash flows and future earnings projection, but also the business owner’s credit score – most of which was bruised when they were bringing up the business.
Are there options for bad credit businesses looking to expand operations, you might ask? Yes, there are several non-banking financial services providers and innovative finance platforms willing to overlook the bad credit in assessing the creditworthiness of your business. You, however, have to contend to their relatively strict loan terms like higher interest on loans and relatively shorter repayment periods. Some will even demand that you secure loans with personal or business assets.
In this guide, we highlight some of the most reputable bad credit business loan providers with the highest probability of approving your business loan. But first, we look at why you need a business loan in the first place and the merits and demerits of opting for one.
Why do you need a bad credit business loan?
i. Funding business expansion:
What happens when you want to expand the scope of your business and reach more viable markets but don’t have sufficient cash savings, and no bank wants to lend you cash because of your poor credit history? You turn to the alternative financial service providers there are ready to overlook the poor credit in advancing you cash.
ii. Sort emergency repairs and upgrades:
At times your business is hit with accidents or other time-sensitive catastrophes that require immediate redress. In such a case, you will need a business loan lender that not only promises to overlook your bad credit score but also offers the fastest turnaround in loan processing.
iii. Sort emergency bills and dues:
It doesn’t just have to be accidents and equipment failures that necessitate immediate cash needs. At other times it is sensitive bills and dues like electricity, water, or key suppliers that require immediate funding.
Criteria used to rank the different bad credit business loan providers:
- Minimum/maximum loan limits
- Interest rates and associated costs
- The flexibility of the repayment periods
- Credit score limit
- Qualification requirements
- Customer support
- Loan processing time
- Need for collateral
Best bad credit business loan providers for 2020: Summary
Best bad credit business loan providers for 2020:
How do you increase your chances of landing a business loan with a bad credit?
i. Get your businesses financial records in order
After the credit score, every bad credit business financial will be assessing your enterprise’s financial health next. If you hope to increase your chances of landing a bad credit business loan, you need to start getting your personal and business financial records in order.
ii. Apply only for loans you qualify for
The more negative information you have on your credit report, the lower your credit score dips. This includes credit checks with different lenders that never materialize. To avoid this, go through the different bad credit business loan providers and ensure that you only apply with an institution if you meet their minimum prequalification requirements in terms of credit scores and annual business revenues.
iii. Arm yourself with proof of projected future incomes
Most of the bad credit business loan providers take into account more than just your credit score in assessing your credibility. They are particularly interested in your recent business incomes and the impact the loan may have on your future income projections. Use this as a selling point when applying for a bad credit loan.
iv. Attach assets as collateral
Every lender needs a reassurance that you are committed to repaying the bad credit business loan amounts advanced. And while most will consider healthy financial records and promising projected incomes, some need further reassurance that they won’t lose their funds should these sources of funds prove unreliable. In such a case, attaching personal and business assets as collateral for the loan comes in handy.
Establishing a business and getting it off the ground often comes at a cost to your credit score. During this time, you probably had to rely on loans and even maxed out credit cards that you were unable to repay in time to inconsistencies in business income. And while banks use this to rule you out as a credit risk, such a bad credit shouldn’t keep you from expanding your business operations or grounded in the case of business crippling emergencies like equipment failure or after natural disasters. Bad credit business loan lenders hope to help you gain access to funds with your bad credit while helping build your non-existent or rebuild your injured credit scores by sharing your loan repayment progress reports with the different credit reference bureaus.
What is the difference between personal and business credit scores?
A personal credit score refers to documented records sourced from different financial services providers like banks, credit unions, mortgage companies, and innovative finance platforms detailing your interaction with their credit services. It highlights your borrowing history and ranks your ability and timeliness in repaying credit advances. A business credit score is no different from a personal score as it also details your company’s borrowing history by rating its ability and timeliness in making payments. Note that while most established businesses can use their credit rating – independent of their founder’s or manager’s credit scores – to access loans, most lenders will consider both the founder/manager’s credit score and that of the business when assessing an SMEs creditworthiness.
What are the chances of my bad credit business loan getting approved?
Your bad credit business loan will always get approved if your business indicates signs of proper management and solid financial health. It is therefore important that you maintain proper business financial records and ensure that you comply with the lender’s qualification terms if you hope to increase your chances of getting your bad credit business loan approved.
How long do I have to wait to receive the loan amounts after the funds are approved?
The wait time to receiving your funds is entirely dependent on your lender and, to some extent, the type of credit applied for. From our list of best bad credit business loan providers for 2019, you will note that most lines of credit providers have the fastest turnaround times ranging from same-day funding to deposits within 24 hours. One-time loans, on the other hand, have to wait between 2 days and up to 9 months – like in the case of Lendza.
Does the bad credit business loan affect my credit score?
Yes, in two fundamental ways. Firstly, the rating scales take into account the number of times a lender(s) pulls out your credit score. Too many credit checks from different lenders and unsuccessful funding are interpreted as a red flag to other lenders. Secondly, most bad credit business loan providers will also report your loan repayment status to the different credit reference bureaus. Therefore timely payment helps build/rebuild your score while negative reporting by the bad credit business lender dips your already low score.
What if I can’t repay the business loan?
Most bad credit business lenders will only advance you credit if they are satisfied with your ability to repay. They also have specialized credit departments that work closely with you and your business – adjusting the payment plans and amounts as needed – to ensure you don’t lag with your pay. But if you default and they are unable to find other means of recovering their cash, they will turn to your loan collateral – auctioning it to cover their losses.
Is the bad credit business loan considered a taxable income?
No, bad credit business loan is not a taxable income. On the contrary, the loan interest paid for these loans is in most cases considered tax-exempt. Different states, however, have different bad credit business loan laws and you are better off getting advice from a tax consultant on how to treat the loans and their interests.