Historically, a credit score of less than 629 made it challenging to get approved for any type of loan. Combining that lower score with the risky factor of unsteady “employment” as an entrepreneur often made business owners the lowest people on the ladder in terms of acceptable borrowers.
Whether you are a small business owner with a past of poor financial decisions or you are looking to start a business with minimal credit to your name, AdvancePoint Capital knows that the world needs entrepreneurs like you in it.
Alternative business lending solutions let us give you more loan options, allowing for flexibility in the approval requirements. Of course, as with any lender, the greater the risk, the higher the interest rates, but AdvancePoint Capital offers multiple financial choices so you can find the one that works for your business.
I get this question asked all the time. “Can I get a small business loan with bad credit” and the short answer is yes. But, let’s dig into the ways in which both business lenders and funder’s look at Credit.
What type of credit reports do business lenders and funders look at to determine my credit?
Each lender requires different factors before they approve you for a loan, but as a rule, there are five aspects of your credit report that play an important role in the application process and your successful outcome. These include:
Your recent and past credit repayment history.
Lenders understand that it is common to have stages early in life in which we make poor choices with our finances, so they look at the big picture by running your credit through credit bureaus. Do you have old detrimental accounts weighing your score down but a strong run of good credit over the last few years, or do you have a credit history of ups and downs when it comes to repaying your debts?
Your personal and business credit score.
Yes, your personal score plays a part in your business loan for some funders. But this can be offset with a good business credit score. Not sure what your business’s credit report says? You can run it through Dun & Bradstreet to see what it looks like. If your score is 75 or up, you have a high chance of loan approval from most lenders.
Your most recent financial documents.
In order to determine if your business is stable enough to repay its loan, lenders want to look at last year’s financial statements. Many alternative lenders at AdvancePoint Capital don’t need all of those documents, though, and will look at your monthly receipts instead of your annual revenue. This helps us to approve more small businesses.
Your ratio of debt to income.
In the eyes of the lender, the higher your debt to income ratio, the greater your chances of defaulting on your loan in order to cover another expense. Businesses with a debt to income ratio of more than 36 (the total of your monthly expenses divided by your total monthly income) are less likely to be approved for a loan.
Potential for collateral.
Most small business loans are unsecured, which means that you don’t need to put anything up as collateral. But when you have bad credit, having collateral to offer the lender as a way to recoup their losses should you default on your payments helps your chances of approval immensely. Collateral can be real estate, office equipment, vehicles, or any other asset that you own.
As a Business Owner, does my personal credit play a role in the decision?
Credit score requirements vary depending on the lender. Most lenders will look at your personal credit history if you are a new business owner or if your business credit is insufficient. But if your business is determined to have enough credit to stand on its own, then many alternative loan funders will use this on your loan application to approve your financing, depending on the loan amounts involved.
What is defined as bad credit?
When your credit is calculated by a credit bureau, a FICO score is created based on a preset algorithm. These credit scores range from 300 to 850, and your approval ratings for loans and the interest rates you are given are based on your own individual score.
The range of scores is as follows:
- 800 – 850 – Exceptional
- 740 – 799 – Very Good
- 670 – 739 – Good
- 580 – 669 – Fair
- 300 – 579 – Very Poor
Alternative Business Lenders provide options for business owners with a spotty credit history. Most of these lenders/funders will offer terms at all credit levels from Prime to Sub Prime/Bad Credit. A few lenders have no minimum credit score requirement at all!
Is a hard inquiry going to hurt my credit?
Your credit score is a combination of many factors; one of which is how many hard inquiries you have. Too many of these inquiries reflects poorly on you because it says you applied to get credit other places. Each hit can reduce your credit score by five to ten points, so it’s important to only run a hard pull on your score when you are reasonably sure you will be approved for the credit cards or other loan you applied for. To learn more check out https://www.myfico.com/credit-education/faq/credit/how-do-inquiries-impact-credit-scores
How is my credit Scores calculated?
Your FICO credit score is calculated through a specific algorithm in which each aspect of your credit is weighted differently.
The determining factors include:
- Your payment history. Comprising a hefty 35% of your score, your payment history tells the story of your financial growth. Late payments can stay on your score for up to seven years, weighing it down significantly.
- Your outstanding balances. The next important aspect of your credit score is how much money you currently owe, making up 30% of your final number. This is also weighed with how much available credit you have. If you are maxing out your credit cards regularly, it can lower your score.
- Length of credit history. The longer you have been amassing fair credit, the better your score, but this section only accounts for 15% of your overall number.
- New credit. New credit is always a double-edged sword for lenders to see. On the one hand, other financial institutions deemed you fit enough to loan you money, but on the other hand, you haven’t proven you are going to pay it back yet. This portion of your credit makes up 10%.
- Types of credit used. The final 10% is determined by the mix of types of credit used. A healthy credit score has a balance of loans, like automobile payments, credit cards, and a mortgage. Too much of one type of loan can lower your score.
Not so simple is it! If you’re a credit junky like me, here’s a source of information related to what’s evaluated in your FICO score https://www.myfico.com/credit-education/whats-in-your-credit-score
Bad Credit Small Business Loans from AdvancePoint Capital
AdvancePoint Capital lenders offer financing options that diverge from the traditional bank or other term loans. Through alternative lending in the form of invoice financing, merchant cash advances, or a line of credit that works like a business credit card, our knowledgeable live agents are available 24 hours a day, every day to help you find the loan that works for your small business.
If your answer has always been no in the past, turn to AdvancePoint Capital, where getting a business loan with bad credit is possible.
We focus more on the strength of the business and less on credit by looking at other key factors such as;
- Your Businesses Cash Flow
- Time in Business
- The health of your business bank statements
To get a quote, Apply Now! Or Call 800-381-8920 24 hrs a day with a Live agent to assist you.
Jacques Famy, Jr.
Chief Marketing Officer at AdvancePoint Capital
Jacques is Co-Founder and managing member of AdvancePoint Capital, an alternative business capital provider that serves small business across the United States. Jacques has over 20 year’s retail lending experience focusing on finding the capital that small business owners need.