What is a bad credit business loan?
A bad credit business loan is a business loan that is tailored for businesses that do not have a good credit rating. These loans include secured loans, unsecured loans with high interest rates, and guarantor loans. These loans are designed to reduce the risk to the lender.
What loans are available for businesses with bad credit?
There are limited finance options available for businesses that suffer from a bad credit score or do not have an extensive credit history. Nonetheless, the loan options generally offered include unsecured and secured loans, and guarantor loans.
Unsecured Business Loans
Unsecured business loans are available for businesses with a poor credit rating. However, there is risk involved lending to companies with bad credit for lenders. This means that the loan amount is usually less, has a shorter repayment period and has higher interest rates.
Secured Business Loans
Secured business loans require security and are attached to business assets, such as business equipment or property. This means that if you fail to repay the loan, the lender has the right to take away the asset. This is usually known as collateral. These loans are considered as less risky to the lender as it ensures the lender will receive a level of payment through the attached assets.
Guarantor Business Loans
A guarantor business loan requires someone you know and trust to cosign the loan – they become the 3rd party guarantor. This legally binding agreement means that if you fail to repay the loan, the guarantor will repay the loan on your behalf until the sum of the loan and accrued interest has been paid.
Merchant Cash Advance
Because of the nature of a Merchant Cash Advance, the lender has security over the card terminal – meaning they will take an agreed percentage of future processed card payments. So long as the lender can establish an average over the previous 6 months that fits their criteria, in most cases the borrowers personal credit is irrelevant.
With Asset Finance the lenders have security over the asset. Meaning if you as the borrower default on the repayments the lender can assume control of the asset and sell the asset to recoup their investment. As such, with security over the asset they are often able to make commercial lending decisions in spite of instances of poor personal credit.
Can you get a business loan with bad credit?
Yes, you can get a business loan if your business has bad credit. Traditional lenders may lend less money due to risk, but finance is available from alternative sources such as credit brokers. It is likely that the loan will include high interest, less money, and a shorter repayment period.
How can I get a business loan with bad credit?
You can get a business loan with bad credit by going to a traditional lender such as a bank, or alternatively using an online lender or a credit broker. With a traditional lender you will likely have to book an appointment. In comparison, you can apply online with an alternative lender.
How can I apply for a business loan with bad credit?
You can apply online for a business loan with bad credit if you choose to apply with SME Loans. You will need to complete a quick online application to provide some basic information about yourself and about your business.
Click ‘apply’. You will first be asked some basic details to verify your business. Please expect to be disclose:
- The amount of money you want to borrow
- Average monthly turnover
- Name & registered office of your business
- How long your business has been actively trading for
Next, you will need to provide your full name and your contact details. Make sure to fill in these details correctly so we can get in contact with you easily.
Now you will need to carefully read through the terms and conditions. You will need to accept the terms and conditions in order to get your quote. From here your application will be processed and reviewed by one of our commercial directors.
Once our commercial directors have reviewed your application, they will look for the most suitable option for your business from one of our panel of lenders. The lender will then review your application and put you in contact with one of their account managers – at this point make sure to ask the lender any questions you have so that the process is as transparent as possible.
Carefully read through all the terms of agreement, sign the relevant documentation and return it to the lender. You will then be able to access the money from your account in 48 hours.
Am I eligible for a bad credit business loan?
To be considered eligible for business finance, you need to fulfil the following conditions:
- Have been actively trading for a minimum of 6 months
- Are registered in the UK by Companies House
- Have a £5,000 minimum monthly turnover
- Are over the age of 18
How can I improve my business credit score?
If you’re looking for a better quality business loan than a bad credit business loan, you will need to improve your credit score. It’s a good idea to check your business credit score using applications such as Credit Passport in order to see how much improvement needs to be made.
6 Steps to help improve your credit score
Once you have a better understanding of your business’ credit rating, you can start looking to make improvements. There is no quick or guaranteed way to improve your business’ credit score. However, adhering to the following steps is a good place to start:
- Inform Companies House, Credit Reference Agencies, directors and suppliers of changes to your business status and location. Inconsistent information provided will make your business appear unreliable, increasing your risk in the eyes of a lender.
- Always pay invoices promptly and on time. Failure to do so can damage your business’s credit score.
- Always submit business accounts and files in time by the deadline set. Late filing indicates financial issues, which can also taint your credit history.
- Limit your credit applications. Too many applications in a short period can raise concern that your business is struggling financially, and to secure funding.
- Pay County Court Judgements (CCJs) on time.
- Proactively inform Credit Reference Agencies about relevant business information. Validating the information on your business’s record is of high importance during credit checks, so the more data available – the better.
What else should I know about my business’ credit score?
When applying for finance, lenders will check your business credit score with a Credit Reference Agency, indicating your business’s reliability in terms of past / late repayments.
As a business director, it’s also important to be aware of your personal credit score. If your business has bad credit, but you as a director have good personal credit, you will be more likely to access bad credit business loans.
When sole traders apply for finance, lenders will inevitably look at personal credit. With startups that don’t have a long business credit history, lenders will also take into consideration creditworthiness of all directors. For SMEs, lenders review a business’s financial history, previous loan agreements, defaults, CCJs and credit card payments.
Improving Your Business Credit Score
Keep on top of your business’s credit regularly, monitoring all information on the record. Ignorance is not bliss – the more you know about your credit, the better.
Personal Guarantees & Guarantors
There’s no denying that financing your business can be difficult if you have a poor credit history. Traditional lenders make it near impossible for smaller businesses to access finance with their strict funding requirements, made even harder for businesses with bad credit.
We know how frustrating it can be when your credit file is letting you down. If you’re searching for business loans for bad credit, at SME Loans we have lenders on our panel that consider all credit scores, and will base their decision on your business performance. Our lenders will analyse your company as a whole, taking several factors into account.
Irrespective of how well a business may be performing, lending money to a business with an adverse credit history, county court judgements (CCJs) and late credit card payments, is usually seen as too much risk to a lender.
However, over the past 10 years there has been a huge increase in the number of lending platforms and lenders available to offer alternative methods of lending to businesses. More and more lenders are choosing to provide finance for high risk businesses, which means you can get business funding with poor credit.
Every business and application is different, and it will very much depend on your individual circumstances and ability to use forms of security to lower the risk for the lender. All lenders require security when providing finance, in order to minimise the risk of a business defaulting on repayments.
At SME Loans we work hard to maintain our high approval rate and try to ensure our lenders say yes to each application (whilst still lending responsibly, of course). We know that one rule doesn’t fit all so we take the time to analyse each business on a deal by deal basis.
Personal Guarantee VS Guarantors
If your business has bad credit, you can still apply for a loan through SME Loans. Where the company director has strong personal credit, the lender will require a signed personal guarantee.
This legally binding agreement personally guarantees that if your business defaults on loan repayments, you as the business director will be personally liable to pay the money back to the lender.
Guarantors For Business Loans
In some circumstances, companies applying for bad credit business loans will be asked to add a guarantor to their application. This is particularly true for larger loan amounts, where two guarantors that are homeowners may be required. Even though the loan is unsecured, there will need to be some form of guarantee secured against the guarantor’s home.
Will My Business Pay More For Having Bad Credit?
Unfortunately, businesses with bad credit will typically be charged a slightly higher rate than those with a stronger credit score. However, the agreed rate will depend largely on the additional security you are able to offer to the lender.
Should I Get A Bad Credit Business Loan?
Think Before You Spend…
Using debt financing can help to grow your business, but it can also harm your business if you aren’t careful. Your business can suffer when you get into a negative cycle of borrowing, making your business less profitable and stunting growth.
With this being said, if you are confident in your business plans and operations, and don’t want to be held back by past mistakes, then it is worth applying for a bad credit business loan.
Frequently Asked Questions
If you still have unanswered questions about getting a business loan with bad credit, then make sure to checkout our FAQs below for more information.
Bad credit business loans are designed for businesses and business owners who have a poor credit history to receive financing. Bad credit business loans are often secured against a property or require a guarantor to cosign the loan. This gives extra security to the lender should the borrower default on a loan.
Getting a business loan with bad credit can be difficult and comes with restrictions, but it is not impossible. There are brokers who work with lenders who can help find a loan, if you have bad credit.
You can apply online for a business loan. You will need to provide information about your business such as how long it has been trading for. In addition, you will have to include persona and contact details. You may be required to provide documents and information about your credit history.
We understand that not everybody has the perfect credit score, but if you’re looking to expand your business because it’s performing well, you deserve finance. That’s why we work with lenders who are able to offer business loans to people with good and bad credit.