Best business loans for bad credit September 2022
What is a bad credit score?
Individual small business lenders may have different guidelines on what defines a bad credit score; however, business loans with bad credit are generally for borrowers with FICO scores below 630.
Although lenders tend to focus on your personal credit score, some may also use your business credit score to assess your loan application. Your credit score reflects your business’ payment history with banks, suppliers and other creditors.
Where to get a business loan with bad credit
Banks and credit unions probably won’t approve you if you have bad credit. But these alternative sources may allow you to get a business loan with a less than ideal credit history:
The disadvantage of a microloan lies in its name: micro. Funds are usually $50,000, which may not be enough for your business needs.
How to get a business loan with bad credit
It is possible to get a business loan even if you have bad credit. Here are four steps you can take to access the financing your business needs.
1. Check your credit
2. Boost your credit, if possible
3. Understand your eligibility criteria
In addition to your credit score, small business lenders are likely to consider the following:
How long have you been in business.
What is your annual income.
How strong is your cash flow.
What type of guarantee you can provide.
On the other hand, the reasons for your low credit score can also influence a lender’s decision. For example, it will likely be harder to get an approval if a recent bankruptcy or default is what’s driving your score down.
4. Shop around and choose the best loan option for your business
Although a lower credit score may mean you have fewer options to choose from, you should still shop around and compare loan products.
Factoring or invoice financing, for example, can turn unpaid customer invoices into immediate cash and is ideal for B2B businesses. Although lenders can still check your credit score, approvals are mostly based on the value of your bills.
Likewise, a merchant cash advance can allow you to leverage your credit and debit card sales for financing. But this type of loan should be a last resort, as rates can reach triple digits.
Research different lenders and loan products to find the one that best suits your business needs.
A low credit score can lead to a higher interest rate, which could make it difficult to pay off your new loan and leave you in worse financial shape than when you started. By comparing loan offers to get the best possible deal, you will better position yourself for success.