Are you looking for a small business loan with bad credit?
As virtually any business owner knows, your credit score is ESSENTIAL to borrowing. Having the right score can mean you’re able to secure funds while the wrong score can lead to frustration and immense pain and suffering. If you have poor credit score, finding a business loan can be an uphill battle. It’s not easy. Banks and lenders are looking for ways to reduce risk and credit score is the easiest way. The last thing they want to do is lend money to someone who may not be able to pay it back.
- FOX Business discusses whether refinancing will hurt your credit score
- NYTimes discusses FICO is tweaking its formula
- USAToday discusses credit scores have gone up last 9 years
Today’s financial world is stricter than ever. The focus on credit score is paramount and integral. Obtaining a small business loan has its own unique challenges. Having a bad credit score could stop you from getting the funds you need to grow and support your business. Business owners with imperfect credit could face hesitancy from lenders. If you really need funds, the best thing you can do is improve your credit score. In many instances, it could be impossible to get financing.
Bad Credit Business Loans from Delancey Street
We have a variety of alternative lending products that are tailored to meet the needs of virtually every single business owner. Our loan options are great, even if you have poor credit. Regardless of your FICO score, Delancey Street’s working capital options for poor credit have simple and streamlined paperwork.
Why your credit score is important
Even though you’re looking for funding, most lenders will look at your personal credit score when evaluating your business loan application. Your credit score is determined by factors like: character, capacity, capital, conditions, and collateral. These characteristics determine how reliable you are – when it comes to repaying your loans.
Typically, bad credit refers to a FICO score of 300-629. Low FICO is a common reason for lenders to reject small business financing. If you score falls lower, you might be able to get a bad credit business loan from a lender like Delancey Street – who focuses on where your business is headed, not your FICO score. Delancey Street can fund applicants with credit scores as low as 500.
What should you do if you have bad credit and need a bad credit business loan?
It’s possible to get capital if you need to grow your business even with bad credit. Below are the three steps you need to take in order to get a Bad Credit Business Loan.
Know your personal score: Personal and business credit helps lenders understand how risky it is to lend you money. The scores influence your ability to get funding. Know your score before you apply for a loan.
Research your options: For each type of financing option, there are requirements you need to meet. Traditional business loans are based on factors like: personal credit score, years in business, annual revenue.
Choose the best option: Once you understand which financing option for your business are available, it’s good to consider not only the eligibility requirements and repayment terms, but also the reputation of the lender you’re about to borrow from!
How to improve your chances of getting a bad credit business loan
If you’ve applied and are worried about how you’ll qualify for a small business loan with poor credit, below are some steps you can take to improve your chances of getting approved and securing the best possible terms of your next small business loan.
Lending money is risky, but if you offer collateral then lenders might be willing to take bigger risks. One way to increase the funds of getting funded is invoice financing. If you have unpaid customer invoices, some lenders might be willing to approve your loan based on the value of the invoices. With invoice factoring, you can trade your unpaid invoices as collateral for your loan. With invoice factoring the financing company advances a % of each invoice and then charges a fee for the service.
Another way to reduce the risk is to consider equipment financing. With this type of funding solution, the equipment you finance serves as collateral for the loan. If you default on your loan, the lending company will seize the equipment to recover the losses. Your personal assets remain untouched though.
Get a cosignor for your bad credit business loan
Another way to improve our chances of getting approved is getting a co-signer. In this scenario, another person agrees to take on some responsibility for a small business loan by co-signing it. This co-signer is an individual with a good credit score, and a steady source of income.
- BankRate.com discusses why you should think twice before co-signing a loan
- Co-signing a loan: Pros and Cons
- Ultimate Cheat Sheet for Cosigning
If you don’t have stellar credit, this is a fantastic way. It can help you get access to credit you need while also establishing/building your own credit. With a cosigner, someone is guaranteeing that they’ll be responsible for paying back the debt if you do not. You might need this if you’re in one of the following situations:
- Don’t meet the minimum income requirement
- Have no credit
- Have bad credit
- Have a high debt to income ratio
- Are self employed
- Changed jobs recently
Applying for credit with a cosignor only helps if your cosigner has good credit and good income. If you are the cosignor on a loan, then the debt you’re signing for will appear on your credit file as well as the credit file of the primary borrower. If you’re the primary co-signer, you should not that by signing you’re opening a new line of credit on your credit report which could impact your debt to income ratio. If you’re the cosigner, it’s your responsibility to pay back the debt if the signer doesn’t – that includes the late fees and collection fees. In some states, a creditor can attempt to collect the debt simultaneously from the signer and cosigner. It’s also good to keep in mind that if the debt goes into default, it can create a blemish on your credit – and the signers.
It’s critical, if you have a cosigner – that you stay stay on top of the loan. You should never “forget” about it, and ignore it. In some cases a creditor will allow the cosigner to be released from their obligations once a certain number of on-time payments have been made, and a credit check is done on the borrower to ensure he/she can handle the credit card/loan payments on their own.
Types of Bad Credit Business Loans
There are a number of types of bad credit small business loans. Below are a list of popular alternatives.
Short Term Loans
This is a type of financing where you get a lump sum of capital, where the borrower agrees to repay the money over a period of time on a repayment schedule. Each payment that the borrower sends to the lender pays the principle and interest at the same time.
Line Of Credit
You can get a short term business line of credit where you can access funds on a continuous basis up to a specified amount. Like a credit card, the borrower is only charged interest on the open balance.
If you secure your business loan with collateral, you’re giving the lender the right to seize it to recover their losses if you don’t repay the loan back. These are known as secured business loans.
Merchant Cash Advances
If your small business needs quick capital then a merchant cash advance is a good idea. It offers a lump sum loan in exchange for a % of future credit card receivables. They are easy to apply for, but may not be suitable for every single business. They are suitable for businesses with higher margins who can absorb the high interest rate.
Working Capital Loans
They are used to finance everyday operations. They are not used to pay for long term assets.
Popular Questions We’re Asked Regarding Bad Credit Business Loans
Can I get a business loan with bad personal credit?
Yes. It's possible, but getting approved for a small business loan is easier if you have great credit. There are options however if you have bad credit. If you have bad personal credit you may be able to look at alternative lenders. Alternative lenders like Delancey Street provide small business loans even if you don't have the best credit score.
What credit score do I need for a business loan?
The higher your credit score, the more likely you are to getting a business loan. There are options for business loans even if you have bad credit. For example, some lenders will approve you even with a poor credit score of 300-550 if the business is profitable, and has high revenues.
Does a business loan lower personal credit?
Your personal credit can be impacted by a small business loan. This depends on your business structure and whether or not you signed for the loan personally If you signed a personal guarantee to repay business loan, it can reduce your personal credit score.
Is it difficult to get a bad credit small business loan?
No, not always! Many small business owners are afraid of trying to get a business loan, sharing financial documents, etc. Many alternative lenders like Delancey Street offer a QUICK turnaround time for the application process. At Delancey Street, our application process is completely online and you can be approved in as little as 24 hours.
How do I qualify for a small business loan?
With so many different options, many business owners can qualify for 1 type of funding yet not qualify for another. Even if you have poor credit you might be able to get approved for a bad credit small business loan. The only way to find out is to apply today!
Hear from other experts in the financial industry about Bad Credit Business Loans
James Taylor, Certified Financial Planner
Your ability to gain business financing when you have poor credit depends as much on the current financial state of your business as your credit history.
If the business in question has been established for a number of years, and you have a consistent flow of income, then these can help you gain business loans. This is particularly true if you have a number of unpaid invoices from customers.
Lenders take a holistic view when it comes to calculating risk of giving credit, so evidence of having a business with consistent turnover will make securing loans more likely.
If you have less than a year of business history under your belt then you will struggle to get a business loan regardless of your credit history.
There are a number of credit providers that offer business loans to people who have a credit score between 500 and 600, these include Fundbox, Kabbage and Quarterspot.
Again your business’s financial history will be as heavily scrutinized as your personal credit score when applying for these lines of credit.
Scott Bates, Scott Bates Blogging
Here are three options I know of for financing a business loan with bad credit, when traditional banks won’t lend to you.
1) Peer to Peer Lending – Prosper or Lending Club will lend to small business owners, but it will most likely be a personal loan. Personal loans are used all the time for funding small businesses, but it may not work for a big corporation.
2) Merchant Cash Advances – An MCA is another option for an established business that needs financing and can’t get approval from a bank.. You need to have merchant services established and you’ll be making daily payments to pay it back. The finance charges can be high and you’ll be essentially borrowing against future earnings. MCA’s should be avoided if possible.
3) An SBA Easy Loan – Can work for some businesses if all financing options have failed. The SBA won’t actually lend you money directly. But, it can help you petition and find funding from a bank which SBA will make a guarantee on for you paying back the money.
Get a merchant cash advance when you have bad credit and need a bad credit small business loans
If your company has steady revenues, it may be eligible for a merchant cash advance. This is not a loan, and it doesn’t require any collateral as a condition of getting your application approved. The best part is that you can get your money quickly and use it for just about any purpose that you want.
Your Credit Score Doesn’t Matter
One of the advantages of a merchant cash advance is that your credit score won’t factor into whether or not you get financing. This is because the amount that you can borrow is based on your credit card transactions and revenue over the past several months. It is also important to note that you won’t be able to improve your credit score by repaying the loan on time.
The Balance Is Repaid Daily
Each day, the lender that provided the advance will take a percentage of your credit card revenues as a means of repaying the balance owed. Let’s say that the daily holdback is 10 percent. This means that 10 percent of revenues will be taken before you have a chance to access funds available in your merchant account. For instance, if your business generated $1,000 in sales, you would pay $100 that day. If you generated $10,000 in sales, you would pay $1,000 on that date.
What Should You Consider Before Applying for an Advance?
While a merchant cash advance can be relatively easy to get, it can be more expensive than other types of loans. For instance, you could pay an effective APR of 30 to 50 percent or more depending on how long it takes to repay the loan. The maximum interest rate that you would pay with a credit card is 29.99 percent assuming that you have poor credit.
You should also decide ahead of time how much money that your company needs to borrow. In most cases, the advance providers will give you what you qualify for even if that is more than you want or need. For instance, you could be approved to receive $50,000 even if the company can’t afford to repay more than $25,000 over the next year or two.
Obtaining a Cash Advance Is Easy
To get a cash advance, all you need to do is fill out the easy online application. It only takes a few minutes to complete, and all you need is to provide basic information about your company and its credit card receipts. If you have any questions about the process of applying for advance funding, a customer service representative will be happy to help.
When you need cash to grow your business, a merchant cash advance is a useful option. With this funding type, you can invest in your business or cover payroll. You can use the cash for added liquidity or to cover unexpected expenses. Whether you need to hire new employees or purchase new equipment, the cash advance can be used for whatever your business needs.
What Is a Merchant Cash Advance?
A cash advance is not a business loan. A provider gives you a lump sum payment in return for getting a percentage of your future debit and credit card sales. This type of funding works well for businesses with a poor or limited credit history because your credit is not the main factor. The advance provider only wants to know how much your business normally brings in through credit and debit transactions.
Once the provider knows how much your company earns during credit and debit transactions, they can determine how much you can receive. Unlike an actual loan, you do not have to use any collateral. Your business and personal finances do not have to be placed at risk because this type of advance is not based on collateral at all. It is only designed according to your sales record.
One of the obvious benefits is having extra capital. Even the most successful companies can have a bad month from time to time. When your sales take a hit, you need cash quickly in order to cover expenses like payroll and overhead. An advance is one way for you to get the cash you need when you are stuck in a credit crunch.
When you need money to fund your company, you need it quickly. You do not have time to spend days or weeks waiting for a bank to give you a loan. With an advance, you get approved in just a few minutes. The funding ends up in your bank account within just 24 to 48 hours.