Business Guides

Bad Credit History? You Need These 10 Things to Get a Business Loan

Last updated on May 26, 2021

Jacques Famy Jr

Starting a small business in any industry is always an exciting endeavor for budding entrepreneurs. The thrill of growing your customer base, implementing branding and marketing, or finally getting out of the red can be enough to entice anyone to start a small enterprise.

Although business ownership is an excellent opportunity, it can be challenging to take your brain-child from the initial idea to a full-blown business without adequate business financing. Getting a business loan is vital during the early growth phases of any small enterprise. There are several ways to secure bad credit small business loans even with a low-quality credit history.

How Your Credit Score Affects Business Loan Eligibility

If you have a poor personal credit score or bad credit history, traditional lending outlets such as banks and credit unions might not be the best source for small business loans. If your personal credit score or credit history holds your business back from reaching new heights, you have alternative options. Seek out reliable online lenders like AdvancePoint Capital to find bad credit business loans for your small business.

 

What Is a Credit Score?

Your personal credit history is upheld by three primary entities called credit bureaus or credit reporting agencies (CRAs). Credit bureaus maintain a credit score for consumers based on a variety of factors. In the United States, the three credit bureaus business owners must be aware of include:

  • Experian
  • Equifax
  • TransUnion

Your credit score can vary across agencies, especially if your creditors don’t report to all three. All lenders have unique credit requirements for granting business loans. Experian, Equifax, and TransUnion are publicly traded, for-profit agencies providing consumer information to creditors and lenders – for a price.

To get a business loan with banks, credit unions, or other business financing sources, the lender must pay a fee to evaluate your credit score with one of the major CRAs. Various credit score ranges provide a reliable ranking of your creditworthiness:

  • Excellent: 800+
  • Very good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Bad: <580

The modern lending marketplace has plenty of loans for bad credit. Online lenders and brokerages like AdvancePoint will find a variety of bad credit business loans from multiple lenders, so you make a selection that suits your business’s needs best, even with bad credit.

Credit Scores vs. a FICO Score

When applying for business loans, or any loan for that matter, the lender wants to evaluate the potential risks. Credit and FICO scores help lending outlets like banks, credit unions, or online lenders ascertain your creditworthiness before agreeing to the loan terms.

FICO scores act similarly to credit scores in that they report on a person’s ability to repay a loan. However, a FICO score is more like an average of the information on your credit reports from each credit bureau.

FICO scores are critical because it is the number nearly 90% of all lenders take into account when determining a business owner’s loan eligibility. Here’s a breakdown of FICO ratings by range:

  • Excellent: 800+
  • Very good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Bad: <580

There are many effective methods to improve your personal credit score and FICO score, plus a range of bad credit business loans and financing products that can still propel your small business forward.

Can My Personal Credit Score Improve?

Of course, you always want to work at improving your personal credit score so you can build more business credit as well. Bad credit can improve easily with some effort. Try these tips to improve your credit score before applying for a loan with bad credit:

  • Check credit reports regularly
  • Always pay bills on time, every month
  • Pay off debts quickly
  • Stay below credit limits
  • Apply for credit sparingly
  • Deal with delinquencies right away
  • Consider debt consolidation
  • Utilize credit monitoring services

With an effective strategy, it’s never too late to start improving your personal credit score. When lenders see upward trends in your credit history, they recognize your rising levels of financial responsibility and highly consider approving business owners for small business loans. Be proactive in your attempt to reverse bad credit and start your new enterprise the right way.

What You Need to Get Business Loans With Bad Credit History

When first launching an enterprise, you’ll likely need business financing or loans for working capital. For people with a healthy personal credit history, this step in the natural progression of business ownership is often a breeze. Others with poor personal credit scores can see small business loan applications as a looming obstacle.

Of course, obtaining small business loans is easier with a better personal credit score. However, there are still plenty of alternative lenders to provide a small business loan with a lower credit score requirement.

Online lenders and brokerages like AdvancePoint Capital offer expert guidance as you seek the best bad credit business loans. Just like when starting a business, getting a bad credit business loan requires thorough research and planning. Several critical pieces of information are necessary to provide proof of your creditworthiness when getting a small business loan with bad credit:

  1. Loan applications: First and foremost, find the proper applications for the business loans, credit cards, or business line of credit you want. Work with expert lending specialists such as AdvancePoint Capital to access and complete the correct applications.
  2. Credit requirement research: Before wasting time and energy applying for unobtainable loan products, put effort into researching credit requirements. Seek out bad credit business loans with less stringent eligibility requirements for higher approval rates.
  3. Your business plan: Lenders like to see that you have a fully developed business plan before diving into financing, especially for those with bad credit. Do adequate research into market trends, financial projections, and profitability of your business to create a comprehensive business plan to accompany loan applications and impress lenders.
  4. Collateral: Another way to improve your likelihood of approval for bad credit business loans is by putting up collateral. Collateral can come in the form of physical items like real estate and equipment, or it can be unpaid invoices, future credit card purchases, and other intangible assets.
  5. Co-signers: Since a co-signer essentially guarantees loan repayment if you default, you don’t want someone who can’t reliably afford the loan either. Ensure co-signers are comfortable with an arrangement before signing for a bad credit business loan.
  6. Down payments: Providing a significant down payment upfront shows how serious you are about getting things started. Significant lump sums also entitle you to more substantial loans or lines of credit.
  7. Business financials: Lenders look at the health of business financials before administering any loans to small business owners. Showing steady growth and upward trends in revenue reflects an ability to maintain success.
  8. Time in business: Creditors consider the length of time you’ve been in business for certain loan options. More time in operation within your industry means better approval ratings.
  9. Income tax returns: Income tax returns indicate reliability as a business owner. If you have outstanding debts or payment plans with the IRS, it can reflect poorly on your business credit score. Keep up with yearly income taxes to qualify yourself for better business loans.
  10. Preferred loan products: After collecting all of the essential information about your business, consider the best loan products for your current circumstances. Bad credit business loans can help supplement your small business’s growth until you gain more stability. Stay on top of repayment to expand your small business loan options in the future.

Work with an experienced online lender like AdvancePoint Capital, where you can find a wide variety of valuable financing options or learn more about kinds of business loan collateral here.

The Best Bad Credit Business Loans

Just because you made a few poor financial decisions in the past doesn’t mean you can’t transform your dream of owning a business into reality. Online lenders can offer a broad range of options so anybody can get a business loan with bad credit. Below, we explore the best bad credit business loans:

1. Short-Term Business Loans

Short-term business loans are a great way to start building creditworthiness without getting in over your head. Typically, terms last between 6 and 18 months, making the repayment process more manageable.

Product Overview

Rates: from 1.09% up to 1.45%
Terms: 6 to 18 months
Fees: Origination fees from 0%-5%
Payments: Monthly, bi-weekly, or daily to reduce risk
Standards: All credit accepted, no minimum credit score required
Time in Business: 6 months or more
Advantages: Easy application and same-day approval

2. Merchant Cash Advance

Another option for business owners with bad credit is a merchant cash advance. After receiving a lump sum of money from a lender, a fixed percentage of future credit card sales is utilized to repay the merchant cash advance loan.

Product Overview

Rates: 1.15% up to 1.45%
Terms: 6 to 18 months
Fees: 1% to 3% origination fees
Payments: Fixed percentage of future credit card sales
Standards: All considered, no credit score minimum
Time in Business: 6 months or more

3. Business Cash Advance

Business cash advances are similar to a merchant cash advance, but instead of future credit card sales as collateral, this bad credit loan product takes a percentage of all future sales overall.

Product Overview

Rates: 1.10% to 1.45% factor rates
Terms: Typically 6 to 18 months
Fees: 1% to 3% origination fees
Payments: Fixed ACH payments weekly or daily
Standards: All FICO scores and profiles considered, no minimum credit scores
Time in Business: 6 months or more

4. Invoice Financing

Invoice financing allows advances of up to 95% on outstanding client invoices. With invoice financing, the remainder of an unpaid invoice is collected directly from customers via your creditor, helping improve cash flow.

Product Overview

Fees: Typically 1% to 1.75% of an unpaid invoice’s amount, with additional fees for delayed payments
Credit Standards: Invoiced companies are credit vetted, not business owners issuing invoices

5. Purchase Order Financing

Purchase order financing is another short-term financing option for business owners with bad credit. Your creditor acts as both a lender and collector, providing capital for purchases from suppliers, with an expectation of repayment after making sales.

Product Overview

Rates: None
Terms: None
Fees: 1% to 5% per purchase order
Standards: All considered
Processing Time: Daily, after initial set up
Time in Business: No requirement

6. Bad Credit Business Line of Credit

Lines of credit are great for supplementing cash flow needs but can be challenging to obtain. Business lines of credit allow you to draw funds up to a specific limit so you can sustain a successful operation.

Product Overview

Rates: Factor costs from 1.09% to 1.28%
Terms: Revolving line of credit, renewed annually or semi-annually
Fees: Origination fees from 0% to 3%
Payments: Monthly, bi-weekly, or weekly
Standards: All considered, better than fair preferred
Processing Time: Same day, up to a week
Time in Business: No requirements

Business Credit Cards With Bad Credit

Securing a business credit card with bad credit is possible, but this financing option has specific requirements. Business owners with bad credit must secure their credit limit with a cash deposit. You will receive a secure, flexible credit card, most likely starting with a small credit limit and higher interest rate.

Over time, as your credit and creditworthiness improve, lenders will offer higher credit limits on business credit cards. Applying for a business credit card is easy with help from expert loan advisers like AdvancePoint Capital.

Bad Credit? There’s Better Business Loans Out There

Stains on your credit history don’t have to slow or altogether stop your dream of owning a small business. Take time to implement tactics to improve your credit score and build a robust business plan. When you’re ready, contact a loan brokerage like AdvancePoint Capital to guide you towards qualifying for exceptional small business loans, even with bad credit.

* All loans made by either WebBank, an FDIC-insured Utah industrial bank, or Bank of the Internet Federal Bank, an FDIC-insured federally chartered thrift located in California. In connection with the loans, the Banks' underwriting conditions and terms apply.