Do you need access to business funds with poor credit?
Here is all you need to know about bad credit business loan
There is a wide range of options for small business owners who want to access business funding. But if your business does not generate enough revenue to pay for all expenses, including emergency situations, then it is time for you to look for alternative funding. However, the problem comes when you have poor credit and do not qualify for a loan in traditional financial institutions. If you approach a traditional bank for a business loan, one of the main considerations is your credit score. If the lender is not satisfied with your score, then accessing a loan will be almost impossible. Besides the credit score, you may also be required to issue a business asset as a guarantee of payment. Well, such requirements are hard to meet, especially for business startups that generate low revenue. But are there other options available? The answer is actually yes. There are many alternative lenders who are willing to provide bad credit business loan. The lenders also have an easy application process and some provide funding in as little as 24 hours. Lenders have different requirements when providing the loan, but most of them are usually unsecured in nature.
Getting a small business loan with bad credit
There are many online lenders that are willing to give business owners with bad credit a chance to access funds for their business. Some lenders provide loans to small business owners with a low credit score of 500-650 range. Some of them do not have a minimum credit score requirement. What these companies value more is the profitability of your business rather than individual credit scores. Other things considered include the period in business, your annual revenue and whether you have been bankrupt in the recent past. Poor credit business loans are available in different types which include short-term loans, business lines of credit, equipment loans and merchant cash advance. If you want to apply for business loans with bad credit, here are some of the important things that you should know;
- The lower your credit score, the higher the charges will be in terms of interest rates and fees.
- If you have issues with customers taking longer to pay, you can consider accessing a short-term business loan in exchange for the unpaid invoices. This is referred to as invoice financing or invoice factoring. While factoring companies may also consider your personal credit score, most of them approve the loan based on your invoices value.
- If you do not have needs that require immediate business funding, you can take time to improve your score and qualify for loans with lower rates in future.
- If you have been in business for less than a year, finding a loan can be tough, and especially if you do not have a good credit score. Among the options available are business credit cards. With this option, you can access business funds up to $50,000.
- For business owners who want to improve their credit score, you can first consider a secured personal credit card. A cash security deposit is required when opening the account. But when used responsibly, it will help improve your personal credit score and you will also get your deposit back.
Obstacles for business loans with poor credit
Credit scores are not only important when you want to apply for a personal loan, but business lenders will also consider your score before advancing money for your business needs. With a poor score, it can be difficult to qualify for affordable loan options. Banks, for instance, try as much as possible to reduce risks and giving money to a borrower who may not be able to pay back may not be easy. This is the main reason why you should always ensure to maintain a good FICO score. Still, it doesn’t mean that individuals with bad credit scores are out of options when it comes to business funding. Even when you have a poor credit score, your business will still need constant funding. The good news is that you can always find a lender who understands how frustrating this situation can be and is willing to provide bad credit business loan.
Where to find bad credit loan?
So where exactly can you get funds to run your business when you have a bad credit history? If you had asked the same questions a few years back, the answer would definitely be no. In the past, acquiring a loan with poor credit was almost impossible. Even if you just required a small business loan for working capital, the situation was always tricky. But with the online lending industry growing at an exponential rate, there are many options available for such business owners today.
Steps to getting a business loan for bad credit
When looking or a poor credit business loan, there are 2 things that you have to consider:
- Find an online lender who meets your business needs
If you need business funding with poor credit, the chances of getting a business loan from traditional banks are less. Securing a business loan in a bank is always difficult. In fact, 4 out of 5 business owners do not get approved. Even businesses with high annual revenue and a good track record can have a hard time getting a bank loan. Besides the collateral requirements, you also should have a personal credit score of 700+ to qualify for a bank loan. This is where online lenders come in. Most bad credit small business loans are offered by online lenders. One advantage of working with online lenders is that they work faster than banks. Their application process is also easier and straightforward with no or very little documentation required. But as much as you can receive a business loan within 24 hours, they also attract higher interest rates than banks loans.
- Know what your credit score is
Some small business owners may not have an idea of their credit score figure, but this should not be a reason for panic. You can check your personal credit score with credit reporting agencies that provide these scores for free once every year. You can also monitor your credit score in a credit reporting site and notice when it starts to drop. Well, even if you find it hard accessing a business loan due to poor credit, you still have the option of improving your credit score and qualify for better loan options.
- Credit score of 700+
If you have a credit score of more than 700, you can qualify for a business loan from different lenders, which includes banks and SBA.
- Credit score of 650-700
If you are in this score range, you will also attract different lenders, including Small Business Administration.
- Credit score of 620-650
In this range, you can qualify for a medium-term business loan
- Credit score of 550-620
Here, you can qualify for a short-term loan and if your business is in good condition, there are also lenders who can offer medium-term loans.
- Credit score of 500-620
If you fall in this FICO score range, it may be challenging for you to qualify for a business loan. But if you have a profitable business, you may find lenders who are willing to offer a loan.
- Credit score of less than 500
If your credit score is below 500, you may have limited option available. But you can still qualify for a business loan if your business is performing well.
Best small business loans for bad credit
Kabbage provides short-term working capital loans in form of business line of credit. Businesses can borrow up to $250,000 and you can receive funding within 3 business days. The loans are offered to borrowers with credit scores of at least 550. Kabbage can be a good option for business owners who want to repay the loan on a monthly basis rather than making daily or weekly payments. If you have cash flow problems, you can also consider Kabbage line of credit rather than applying for a long-term loan. The loan attracts an APR of 30%-40%. The loan term is between 6 and 12 months. There are no prepayment penalties, which mean that you can pay off the loan early to avoid the interest rates. You should be in business for at least one year with minimum revenue of $50,000 to qualify for funding.
If your business generates high annual revenue and you need a large loan amount, QuarterSpot is one of the best options available. The lender provides fast business loans bad credit for amounts up to $250,000. You can easily qualify for funding if you have a credit score of 550+. Applying will also not have an impact on your credit score since only soft credit pull is done. You should have at least one year in business with annual revenue of $200,000. The loan attracts an APR of 30%-70% with a term loan of up to 18 months.
FundBox had 2 lending options – invoice factoring and line of credit. With invoice factoring, you can easily convert pending customer invoices into working capital. The loans can be a good option for business owners with poor credit but their businesses have strong revenue history. You can receive business funding up to $100,000 with an APR of 38%-54% for their line of credit. There are no prepayment penalties incurred. The line of credit has a term of 12 to 24 weeks, repaid on a weekly basis with no credit score requirements. The funds are provided within 3 business days.
OnDeck provides lines of credit and short-term loans of up to $500K to small businesses. You can receive funding with a credit score of as low as 500. The company focuses more on the business revenue. You can receive funding within 1 business day. OnDeck funding option can work well for business owners with bad credit that need quick financing of more than $100,000. OnDeck small business loans bad credit has an APR of 30%-50%. If you have good credit, you can access the loans at more affordable rates. The repayment term ranges from 3 months up to 3 years. To qualify, you should be in business for at least one year with annual revenue of more than $100K.
If you have cash flow problems caused by delayed payments from customers, BlueVine can be a good alternative option for you. The loan is paid back once the customer pays. With this lending option, your credit score is not considered. The lender focuses more on the value of the invoice. But with BlueVine line of credit, you should have a credit score of 600+ to qualify for funding. The company factors invoices ranging from $20,000 to $5M with a fee of 2.5%-5% per month. The repayment term is between 1 to 12 weeks. The loan has an APR of 30%-60%.
How to build credit and qualify for better business loans options
If you want to improve your credit score, you must first learn to borrow responsibly. Some of the things you should consider to build your credit and qualify for affordable loan options include:
- Paying on time
Besides building a good relationship with your lender, making timely payments will also help improve your credit score.
- Monitor your credit score
Even if you put the necessary measures to ensure that your credit score improves, you should constantly monitor your score through credit reporting sites.
- Stay in business
The longer you stay in business, the more financing options you will qualify for. Most lenders consider your time in business when providing a loan. This is especially if you want to qualify for small business loans with bad credit.
Bad credit is a credit score that is between the 300-629 FICO ranges. Having poor credit is one of the main reasons why banks and other traditional financial institutions reject business loan applications. If you have poor credit, most lenders perceive you as a highly risky borrower. But this should not the end of your entrepreneurial dreams. There are many micro-lending organizations that are willing to provide business loans for bad credit. Most of these lenders are interested in the profitability of your business and not personal credit scores. You also have the option of improving your credit score to qualify for better loan options in future.