How to Get A Business Loan With Bad Credit
A business loan can help businesses grow and manage their cash flow during growth periods.
However, securing business loan approval can be challenging—especially for business borrowers with lower credit records.
Fortunately, bad credit business loans may be able to help.
Read this guide to learn how to get a business loan with bad credit.
Bad Credit Business Loans Defined
Bad credit business loans are designed for businesses with credit scores below the traditional standards set by banks and other financial institutions.
Also known as bad credit business finance, these loans can be pricier. However, they’re typically highly accessible for bad credit businesses aiming to expand.
Though you may have other loan options like an unsecured business loan, bad credit loans can be a good choice.
Before you get a business loan with bad credit, remember that it may come with higher interest rates and potential collateral requirements.
Most lenders will also strictly scrutinise your company’s credit history more closely.
NOTE: Small business owners may find themselves eligible for limited loan amounts.
Borrowing Limits for Bad Credit Loans
The credit limit is the maximum cash you can borrow, which depends on the lender’s overall assessment.
When you get a business loan with bad credit, the borrowing amount depends on your credit score, history, revenue, expenses, assets, and business type.
For instance, Lumi offers loans ranging from $5,000 to $300,000.
Small to medium-sized businesses with good credit can generally borrow higher amounts.
Furthermore, established small businesses are also more likely to get a higher credit limit, even if they get a business loan with bad credit.
Typical Bad Credit Loan Rates
The interest rates for bad credit business loans depend on the lender you work with. As well as the proposed loan amount, and repayment terms.
If you offer something valuable as collateral, like property or equipment, it may reduce the risk for the lender. This might lead to a better interest rate on the loan.
For those with less-than-perfect credit, unsecured loans could be a good choice. They don’t require collateral.
But because they’re riskier for many bad credit business lenders, the rates can be higher.
Who Can Get a Business Loan With Bad Credit?
A loan application’s approval may depend on the company’s credit history, revenue, circumstance, and other lender-specific requirements.
Typically, a credit score of at least 350 is needed. However, even with bad credit, you may still get approval if your overall eligibility is strong.
Eligibility Criteria for a Bad Credit Business Loan
Requirements for a bad credit business loan vary between lenders. Traditional lenders typically have stricter requirements, while alternative lenders may have more relaxed regulations.
Meet the requirements before filling out a pre-approval form.
- Credit ratings: Business credit below 350 doesn’t guarantee approval, but it might be considered.
- Credit reports: Many lenders will review your credit file to look for any red flags, such as previous bankruptcies or missed payments.
- Purpose of funds: Include borrowing details, repayment plans, and use of funds.
- Time in business: Businesses typically need to present a trading history of at least six months.
- Financial statements: This includes cash flow, profit and loss statements, tax returns, and other requested forms. Gross annual turnover should be at least $50,000.
NOTE: Credit check business loans are not regulated similarly by Australian lenders. This means there’s typically no supervision or rate cap for bad credit lenders.
Benefits of a Bad Credit Business Loan
Bad credit business loans can provide several benefits, including the following
- Bad credit history is okay
- Opportunity to improve credit rating with timely loan repayments
- Various business finance options are offered
- Faster approval process than mainstream lenders
- Bad credit business loans can have flexible loan terms
- You may be able to get an unsecured loan
Considerations Before You Get a Business Loan With Bad Credit
Before you get a business loan with bad credit, it’s crucial to thoroughly weigh the following first.
- Interest rates: Compare traditional banks, private lenders, and online lenders to find who has the best interest rate.
- Debt agreement: Find a bad credit business loan that won’t create excessive financial commitments for you.
- Loan size: Determine how much of your existing business’ costs the loan will cover.
- Hidden fees: Be aware of any additional fees associated with a bad credit business loan.
- Collateral: Consider whether you have assets to offer as collateral, especially if you’re looking into a secured loan.
Tips for Bouncing Back From a Poor Credit Rating
If you have a bad credit rating, consider these methods to improve it before applying for a bad credit business loan.
Stay Within Your Credit Limits
Aim to use only 30% or less of your available monthly credit. Over time, you can aim to reduce your credit utilisation to 10% or less to further improve your business credit score.
Avoid overspending and exceeding your limit to maintain a positive credit profile.
Pay on Time
Pay off your balance in full to avoid interest and improve your credit report. You can set up automatic payments to ensure timely debt repayment.
It’s crucial to consistently make timely payments to improve a bad credit score.
Early loan repayment may earn you a varying interest discount—based on the length of time you’ve spent repaying it.
Don’t Borrow More Than You Can Repay
You can avoid financial strain by borrowing bad credit business loans responsibly.
Only take on debt that aligns with your business’s cash flow, and be cautious not to overextend. You may want to borrow what you need and can comfortably repay.
Avoid Missing Payments
Even a single missed payment can have a detrimental impact on your credit checks. Prioritise debt repayment to avoid damaging your available credit.
If you’re struggling to repay an existing credit check business loan, you can contact your lender. They’ll assist clients as needed.
FAQs
Here are questions to consider when applying for a bad credit business loan.
What Constitutes a Bad Credit Score in Australia?
Equifax, one of Australia’s three major credit reporting agencies, generally considers a credit score below 500 as bad credit, but scoring criteria may differ between agencies.
Unlike traditional banks, lenders will look beyond your credit score to approve your bad credit business loan.
Does Bad Personal Credit Affect Business Loans?
Business lenders will likely check both personal and business credit accounts. Review both reports and understand your scores.
Conclusion
Don’t expect guaranteed approval for small business loans. However, the process is usually straightforward if you meet the qualifying criteria and can demonstrate your ability to repay the loan.
It may become challenging with bad credit scores, but it’s not impossible.
You can still find business loans to manage and aid your business’ growth and expansion. However, be prepared for higher interest rates or shorter repayment terms.
