What is a Subprime Business Loan?

A Subprime Business Loan is defined as a business loan in which the business owners’ personal credit and/or business credit is impaired in some way and cannot get credit approved by a traditional business lending product. The term “Subprime” does have a stigma to it due to the creditworthiness of the business borrower and the impact that has on business loan product availability and terms. Costs and terms of Subprime business loans are not as favorable as a traditional business loan. 

Used properly, subprime business loans play a vital role in the access of working capital to business owners with credit impairment. Without subprime business loans, there would be no other options for this segment of business owners, which could lead to the block of access to self-employment. 

What Does Subprime Credit Mean?

Subprime credit is personal credit that is fair to poor and not considered good or excellent. The term Subprime is derived from “Prime,” which means thriving, high, best, or premier. “Sub” means below a usual or normal level or standard. Personal credit is not just a FICO score but an overall description of credit.

What Are the Most Common Uses for a Subprime Business Loan? 

Here’s a list of the top reasons for the need for capital for Subprime Business Loans.

• Working Capital to improve cash flow

• Inventory and/or Supplies

• Marketing/Advertising

• Equipment Purchases

• Renovations

• Interior Decorating/ Remodeling

• Emergency Repairs

How to Choose the Right Subprime Business Loan

The first step in the process of getting subprime business financing is always to ask yourself why you need the money. What is the purpose? And how will the financing benefit your business? The purpose and use will dictate what business loan product you will choose. You need to balance costs versus the benefits closer because subprime credit lending costs more. The length of time of repayment, payment frequency, and product flexibility when making the best choice must also be considered. 

4 Top Subprime Business Loans

1. Business Lines of Credit for Subprime Credit

Business lines of credit operate the same as a personal credit card in that it is an open revolving line of credit that allows for draws at any time up to a specific credit limit. Because of the draw feature, business lines of credit offer flexibility, unlike other subprime business funding products available in the marketplace, with the exception of credit cards. 

Product Overview

Rates: Interest rates starting at 4.5% 

Terms: Revolving credit with renewals quarterly, 6 months or 12 months

Fees: 0% to 3% Origination Fees

Payments: Monthly

Credit Standards: Fair to Excellent credit

Special Features: You can draw as little or as much money up to a credit limit at any time

Processing Time: Same day or up to 30 Days depending on business lender

Benefits and Best Uses of business lines of credit 

Flexibility is one word that can sum up why business owners choose this a business line of credit. This product can also be used in conjunction with other business funding options. There are no restrictions on the use of money, but most common is general working capital and cash flow needs. 

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2. Short Term Subprime Business Loans

Short term business loans can handle subprime credit because they have fixed amounts offered upfront, with a fixed payback amount over a fixed term of time that’s less (typically 6 to 18 months) than traditional lending to compensate for the subprime credit risk. Short term subprime business financing can be a great alternative when you cannot qualify for more traditional business loan products due to credit. Rates are based on factor costs and not principal & interest and cost more than traditional business loans. The good news about this product is that it requires very little paperwork and credit requirements are much more forgiving than traditional business loans.

Product Overview

Rates: Factor Rates range from 1.10% up to 1.45% of the funded amount

Terms: Typically 6 to 18 months

Fees: 1% to 5% Origination Fees

Payments: Weekly, Bi-Weekly, Monthly, and in some cases daily Monday-Friday

Credit Standards: Poor to Excellent. All credit considered

Processing Time: same day to 24 hours from application to funding can be same day to 24 hours. 

Benefits and best uses of Short Term Business Loans 

Short term subprime business financing has higher rates and fees to compensate for risk, but it can come in real handy when you can’t get approved for more traditional business loan products because of credit. There are very few restrictions on the use of money, but most commonly used for working capital and cash flow problems.

3. Merchant Cash Advance for Subprime Credit

Merchant cash advances (also known as a Purchase of Future Sales Agreement) advance a fixed sum of money to a business owner with a payback (discounted purchase price) that is a greater amount than the lump sum upfront provided to the merchant. The advance is repaid by taking a fixed percentage of future credit card sales batches until the payback amount is paid back in full.

There is no term limit with a merchant cash advance as the payback is a set fixed percentage that does not change from future credit card batches. Because of this repayment process, merchant cash advances take an even greater risk when evaluating business owner credit than short term business loans that have to collect out of the business bank statements. The time frame to pay back depends on the volumes of future credit card sales and fluctuates. It’s estimated that merchant cash advances are set up with expectations of being repaid in 6 to 18 months but fluctuate depending on future credit card sales. 

Product Overview

Rates: 1.09% up to 1.45% Factor Rate

Terms: Paybacks are estimated to be 6 to 18 months. No term limits

Fees: 0% to 5% Origination Fees

Payments: Fixed percentage Splits from future credit card batches

Credit Standards: All credit types considered

Benefits and Best Uses of Merchant Cash Advance 

The flexibility of repayment, which is attached to the fixed percentage of future sales, is very popular with business despite the fact that merchant cash advances cost more than traditional bank financing with higher rates and fees. The use of the money can be used for a variety of different purposes, but a majority of money is used for working capital or cash flow needs.

4. Business Cash Advance for Subprime Credit

Business cash advances (also known as a Purchase of Future Sales Agreement) are similar to a merchant cash advance that provides a fixed amount of money up front to a business owner with a payback (discounted purchase price) that is a greater amount than the lump sum upfront provided to the merchant. 

Unlike a merchant cash advance, which takes a percentage of future credit card sales, the business cash advance is repaid by taking a fixed percentage of future overall sales. Payments are collected by a fixed daily or weekly payment deducted from a business bank account, which is based on the fixed percentage of future sales. Every month, if the fixed payments take more than the set future percentage of sales, than a refund back to the merchant can occur. This repayment continues until the payback amount is paid back in full. There is no term limit with advances as the fixed back percentage never changes. The time frame to pay back is not fixed because volumes of future overall sales are not the same type. Expectations of being repaid are in 6 to 18 months range, but again, it may be longer or shorter depending on future credit card sales. 

Business cash advance’s usually evaluate the business owners’ credit the same as short term business loans and does not go as deep into bad credit as merchant cash advance can.

Product Overview

Rates: 1.09% up to 1.45% Factor Rates 

Terms: Estimated payback periods are 6 to 18 months. No term limits

Fees: 0% to 5% Origination Fees

Payments: Fixed ACH payments weekly or daily Monday-Friday 

Credit Standards: All credit types considered

Benefits and Best Uses of Business Cash Advance 

Business Cash Advances cost more than traditional loans and have less favorable terms, but at the end of the day, it provides money to businesses as an alternative to traditional financing when it’s not an option. There are almost no restrictions to use of the money for the business.

The fast, convenient and straightforward way to get the money you need for your business – now! Get Your Quote Today by filling out our simple form.

Frequently Asked Questions

Are Subprime Business Loans Financing Difficult to Obtain?

No, it is not difficult to find subprime business financing. There are many lenders and marketplace providers that offer these types of products. Approval rates are much higher than that of traditional business loans.

What are the interest rates for Subprime business loans?

Interest rates vary widely depending on the business loan product. Factor rates, which are not interest rates, are common in subprime business funding and range from 1.09% up to 1.45%.

How much will Subprime Business Loans cost in fees?

The fees range from 1% to 5% of the loan amount or funding amount. Costs and fees vary widely depending on the type of business funding product you qualify for. Always look at financing disclosures and agreements and check the terms and conditions of any offer for all specific fees to be charged.

Can I qualify for a Subprime Business Loan if I have bad credit?

The short answer is most likely YES. Short term business loans were created just for that purpose. Both business and merchant cash advance allow for bad credit with some limitations. Traditional business loans and traditional lines of credit do not allow for bad credit.

What type of collateral is used for Subprime Loans?

Most funding options only require an overall business blanket guarantee for collateral that covers everything under the business. Personal collateral is usually not required.

Can I get a Subprime Business Loan without a personal guarantee?

Yes, some business loans and advance products come without personal guarantees but careful, without personal guarantees rates, and cost tends to be much higher than with a guarantee. When getting business financing, weigh your options carefully. 

Can I get a Subprime Business funding if I am a start-up business?

The short answer is no; you cannot get a subprime business funding product without at least six months of business cash flow activity.

The Bottom Line: Advice, Tips, Warning’s About Subprime Loans

When thinking of getting a subprime business based loan, you first must ask why. So, are you looking at subprime business loans because you were declined based on personal credit? Have you evaluated the cost vs. benefit analysis? 

If the answer is YES to any of the above questions, we would recommend looking into asset-based business loans. If the answer is NO, take the time to look at better business finance opportunities that offer better rates, costs, and terms.

How to Apply (And Qualify) for a Subprime Business Loan

Start with this Online Form

Applying for a loan with AdvancePoint Capital is as simple as a 1, 2, 3, 4 process. Start with this online form, then fill out the short application page, wait a few hours for your approval, and then get your money!

AdvancePoint Capital offers an easy business loan experience. Our customers love the fast, streamlined process and high approval rates that come from working with us. All credit scores are considered.

* 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.