How to Get a Business Loan with Bad Credit

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Find out how you can boost your credit score and get business funding, even if you have bad credit.

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As you may know, maintaining an above-average reputation is extremely important for running a small business, and this is especially important if you need additional working capital and want to obtain a small business loan from a traditional lender. When your credit score is low, obtaining funding approval can be very difficult.

We’re sharing tips on how to get a business loan. We’ll also show you ways to build your credit score and increase your chances of getting approved.

So let’s begin, so you can better determine whether getting a business loan with bad credit is the right move for you.

Getting a Business Loan with Bad Credit

In the sections below, we break down what you need to do to secure a business loan with bad credit.

Research Credit Score Requirements

Research as early as possible and determine which lenders provide credit to small business owners with poor credit ratings. Doing this research is especially important if your credit score is below 500. 

Some online lenders are relatively lenient about this, but if your rating is lower, such as below 500, it may make lenders worry about working with you.

If you do not meet the minimum credit requirements, please do not waste time contacting the lender.  Instead, focus on creating a commercial loan and applying for the loan as soon as your score improves. 

You also need to obtain additional working capital as soon as possible. Please try to find a lender with a lower minimum credit rating.

Make a Plan

When applying for a low-credit small loan, it is helpful to have an organized business plan that you can share with the lender, which may help convince them that you can accept the payment terms.

In addition, you should be prepared to provide the lender with the monthly sales revenue of your business. With hard work and determination, your business financial situation will improve over time.

Even if your credit score is not high, if the lender sees your financial situation on an upward trajectory, they may be more willing to work with you. However, if your sales are low or unpredictable, they may be reluctant to provide you with a commercial loan.

Another part you should include in your business plan is information about using the loan. For example, maybe you are planning to use a term loan to purchase new equipment. Outline this in your business plan and explain how using this loan to pay for this fee will benefit your business finances in the long run.

In the example, you can explain how to serve more customers (and thus get more sales) after the device is updated. Even if your credit score is not high, this can persuade the lender to cooperate with you.

If you can prove that obtaining commercial financing will benefit your business’ sales, you are more likely to be approved. Once you get more funds, you can repay the loan easily, which is the lender’s primary concern.

Prepare for Higher Interest

When applying for commercial financing from a lender, you need to consider the interest rate they offer you. If your business has a low credit score, it may result in you getting a higher interest rate than a business with an above-average credit score. 

This is because the lender may evaluate you as a high-risk customer who may not be able to repay the loan on time.

Therefore, you should consider whether your business can repay the loan amount responsibly. If you think you cannot pay the loan while maintaining business operations, it may be better to wait for the loan.

Remember, if you miss a loan payment, your business credit score will not improve. Therefore, if you know the terms and interest rates will be challenging to manage, now may not be the right time for you to obtain a loan.

Work on Your Credit

If you still want to get a business loan with a poor credit score, the answer is simple: improve your credit score before applying.

First, you need to check your business credit report to check your score and determine if there are any discrepancies. If so, you should report these issues to all credit bureaus to adjust your score.

It is important to realize that improving your credit score is not something you can do overnight. Instead, getting a better score requires you to develop healthy financial habits and then prove your financial responsibility to the credit bureau over time. 

If you need to get a business loan as soon as possible, this may be frustrating, but it may be your best option.

If you are not in a rush to get financing, you should improve your score and then focus on applying. Be sure to read on because our last step provides an easy way to help build corporate credit.

Consider a Merchant Cash Advance

If you are interested in commercial financing options but your credit score is low, it is best to apply for a merchant cash advance.

A merchant cash advance is a kind of commercial financing, but it is not a small business loan. When you receive the prepaid cash, you will receive one-time financing in exchange for the provider receiving a certain percentage of your credit card sales. 

Therefore, even if your credit score is below average, you are still eligible to use the product if you have stable commercial credit card sales.

During the merchant cash advance application process, financing providers will look for large amounts of small deposits. Therefore, if you meet this requirement, financers may ignore your bad credit.

Another significant benefit of prepaid cash is that your remittance is based on your current credit card payment. Therefore, if you have a slow month, your repayment amount will be less than during peak hours. Many business owners like this because they can fulfill their obligations without setting the terms.

Borrow From Friends or Family

If you are in trouble and need immediate financing to keep your business running, consider asking a friend or family member for some cash.

In most cases, we do not recommend taking a loan from a loved one, but if you know someone willing to give you money until you can apply for financing, you can increase your business credit at the same time. Then, once your credit score rises, you can apply for a commercial loan or line of credit from an alternative lender.

Catch up Bill with On-Time Payments

One of the easiest ways to improve your credit score is to pay your bills on or before the due date. Delays in paying bills can be a factor in your low credit score, making this a priority. Let’s look at a few ways to ensure that your bills are paid on time.

Set monthly calendar reminders. If you often miss the bill due date, we recommend setting up a calendar notification to remind you when the due date is approaching. In this way, you will receive a reasonable warning that the expiration date is approaching.

Optimize your budget. If you pay bills after the deadline due to a shortage of cash flow, you should improve your business’s future budget so that you can afford to pay monthly expenses. Setting a budget can be daunting, but it will help you avoid overspending in the future.

Utilize cash apps. Many financial apps can help business owners pay and manage their bills. If you are interested in such technologies, check out applications such as Mint, Bills Monitor, and TimelyBills, just to name a few.

By trying these techniques, you can easily pay your bills before the due date and get a good credit score.

In Closing

We hope this guide provides you with valuable ideas on obtaining a business loan with bad personal or commercial credit. However, don’t get discouraged when completing this process, as other lending institutions will provide loan options for small business owners with poor credit records.

If you have received a bad credit business loan or successfully raised your score to obtain financing approval, it’s important to make sure that you follow up with timely payments. 

The last thing you want to do is tarnish your credit score even more so. So, if you need assistance with exploring your loan options, we encourage you to reach out to our loan experts. 

Here at Seek Capital, we have secured more than $400 million in funding since 2015. We will work hard to make sure that you get the best loan option based on your financial needs.

Sources: 

500 Credit Score: Is it Good or Bad?

Mint: Budget Tracker & Planner | Free Online Money Management

TimelyBills: Best Money Management App | Budget Tracker & Bill Reminder

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