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Can you get a small business loan with bad credit? 

Understandably growing a business takes time, effort and money. Most of the time that process is far from linear and business owners are often required to take on debt to get their business where they want it to be. This, combined with all the unforeseen events that can affect a business’s cash flow and profitability, can make it difficult to maintain a good credit rating. Which in turn is a crucial criteria when applying for a small business loan.

So, the million dollar question, that’s on the mind of many small business owners, is: Can you get a small business loan with bad credit?

Unfortunately, there is no simple yes or no answer to that question. It depends on many factors including the business’s circumstances, time in business, credit history over time and also the lender’s specific requirements.

But don’t feel discouraged just yet. Just like businesses are unique, lenders are too. So, make sure to do your research and understand what lenders are looking for and which one would accommodate for your business’s individual circumstances. 

What is a good or bad credit rating? 

First, let’s recap what credit rating is in general. 

Essentially, your credit rating is an assessment of your “creditworthiness”, which helps a lender decide how risky it is for them to lend you money. Often your credit rating is summarised by a credit score. For example, Equifax, which is one of Australia’s three major credit reporting bodies, usually classifies a credit score from 0-1,200. As you can imagine, the higher the score, the better your chances of getting approved for a business loan. And the more money you can borrow on better terms as well. 

But what is considered good or bad credit and can you still get a small business loan if your credit score is lower? According to Equifax, the credit score can be classified into five different categories: 

Below Average Average Good  Very good Excellent 
Score  0-505                      506-665                666-755                 756-840                  841-1,200                

Bear in mind that business lenders usually look at both your personal and your business credit score, which can vary. So make sure you check both your personal and your business credit reports. 

What is the minimum credit score to apply for a small business loan? 

At Lumi we look at credit scores slightly differently. This is not to say that you can get a small business loan with bad credit. It simply means that your credit score is only one of the criteria we assess when making a decision about your online business loan application.

We also take into account information about how much revenue your business has been generating, how long your business has been operating for, what industry you operate in (since certain industries can present higher risks than others) as well as your business’s financial health over time etc. All of these things will impact an application outcome and we never look at one piece of information in isolation but rather at the whole story of the business.

However, at Lumi we require our applicants to have a credit score of at least 350. Again, having a credit score of 350 won’t automatically guarantee a loan approval. But it does show that if the rest of your application is convincing then you can indeed be considered for a business loan even with less-than-perfect credit. 

How to improve your credit rating 

In case your credit rating has suffered a dip or you simply want to increase your credit score to get better terms for your business loan, then there are certain strategies you can look into.

The way credit scores are being calculated is complex but some key influences and things for you to consider are:

  • Existing debt:

Have you already borrowed money? If so, how much and could you potentially pay it off before applying for the next loan?

  • Number of credit applications:

It’s important to know that every time you apply for a loan, or other forms of credit, the lender usually does a full credit assessment including a credit check. The lender gets that information from your credit report, which is run by the credit bureau. This means the credit bureau knows that you’re applying for credit and that can impact your credit score. Therefore, it’s very important that you don’t shop around for credit, but rather do a thorough research and make an informed decision before applying for a loan with a lender. Good news, at Lumi, we will always seek your permission prior to performing a full credit assessment. This means you can apply fuss-free online and get conditionally approved before we move on to the next stage of the application, for which we would then require a credit check. 

  • Paying your bills on time:

One of the things that the credit report tracks is if you’re paying your bills on time. If you do so, this can improve your credit score. If not, it can decrease your credit score. In case you are struggling to pay your bills on time because you’re already doing a million other things everyday, try to find ways to automate your payments, so you don’t have to worry about it afterwards. You’ll only need to make sure you’ve got sufficient cash in the bank to cover for the ongoing costs. 

Of course, there are other things that can influence your credit score but if you already focus on the three things mentioned above, you’re on the right track to improve your credit score. 

3 tips before applying for a business loan 

To maximise your chances of getting a positive business loan application outcome, make sure you follow these three steps: 

  1. Check your personal and business credit report to understand what your credit scores are.

  2. Take the necessary steps to improve your credit rating if necessary. 

  3. Research a lender that caters to your needs. 

At Lumi we offer fast access to flexible business funding solutions including term loans and line of credit from $5,000 – $300,000. You can apply online in 5 minutes here. Get a decision in 2 business hours and receive the funds on the same business day. 

What you need to get started:

  • A valid ABN/ACN

  • Min 6 months in business 

  • Min $5K monthly turnover 

If you want to discuss your situation or get some advice about your business loan application, get in touch via support@lumi.com.au or give us a call on 1300 00 5864

Your Lumi team 

Post Author: Vanessa Muller

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