How To Get a Business Loan With Bad Credit
As a business owner, no matter the size of your business, balancing the books can get complicated. Instability in the economy, start-up debt, issues with cash flow, and overdue client invoices can cause you to slip behind. Missed payments and/or defaulting on loans can cause damage to your credit rating. Your credit rating plays a huge part in whether or not you can gain approval on new lines of credit. But all is not lost, it is possible to learn how to get a business loan with bad credit.
Can’t I Just Apply For A Regular Loan?
The short answer is, no. You can certainly try, however, most banks and lenders base their decision to approve loans on credit scores. They are risk-averse and have strict lending criteria. A poor credit score means you don’t meet the minimum of these criteria. In fact, each time you apply for a loan or line of credit you lower your credit score further.
It’s important to understand how to get a business loan with bad credit before you approach any lender. Don’t risk further damage to your credit score by applying for the wrong loan with the wrong lender. Prior to applying, it is wise to discuss undertaking a bad credit loan with a financial advisor. They can help you weigh up the risks and whether it will be worth it for your business.
What Are Bad Credit Business Loans?
A bad credit business loan is a loan that is structured to suit both the lender and the borrower. They generally will have a higher interest than a standard loan. Unfortunately, high interest goes hand in hand with a bad credit rating. The reason for this is that the lender is taking a significant risk in extending credit to a business with poor credit. To mitigate their own risk, they raise the interest.
The interest rate will vary from lender to lender depending on their terms. The main thing is to avoid loan sharks or individual lenders who can charge exorbitant rates – even up to 200% interest. Taking out a poorly investigated, high-interest bad credit business loan places you at further risk of defaulting on repayments. You could even lose your business altogether if you are unable to service the loan.
How To Get A Business Loan With Bad Credit
Thankfully there are lenders who specialize in these types of loans, some with very competitive rates. They will often require little to no security (assets) to obtain approval. These unsecured loans overlook a bad credit rating, instead, they focus on your proven capacity to make the repayments. So long as your business is performing well you still have a good chance of gaining approval on your loan application.
Some important steps to prepare your application are:
Prepare your business plan
Outline how much you wish to borrow and how you intend to use the funds. Lay out your expenditures, future projections, and capacity for earning. Consider including supporting paperwork from your financial advisor. Your goal is to demonstrate how the loan will benefit and grow your business. A thriving business is one that can repay the loan.
Gather supporting documents
While your credit rating may be overlooked you will still need to prepare supporting paperwork:
• BAS or tax records to show you meet the minimum turnover requirements determined by the lender.
• Bank statements for the past 6 months minimum.
• Merchant statements or credit sales for the past 6 months. These are required as they indicate how much and how consistently you earn.
• Personal identity documents (passport, license, utility bills, etc)
• Proof that your business has been trading under your ABN for the required timeframe (usually 2 years).
Research the right lender
Or engage the help of a brokering service such as Bad Credit Loans to do the legwork for you. Engaging an expert can help you find the most competitive rate and product without compromising your business’ security. They understand in-depth how to get a business loan with bad credit and can save you money, time, and stress.
If your credit rating is too damaged to secure a higher amount, consider taking out a smaller, more manageable loan and repaying it on time. This helps repair your credit rating and lenders will be more open to lending you larger amounts.
Don’t Let Bad Credit Hold Your Business Back
Now that you understand how to get a business loan with bad credit, you can grow your business as you hoped for. Bad credit can happen to anyone, it doesn’t have to hold you back. With careful planning and advice, you can secure a bad credit business loan. Avoid extreme high-interest loans or loan scams and get your business on the path to profitability.