How to Get a Business Loan with a Poor Credit Score

How to Get a Business Loan with a Poor Credit Score
How to Get a Business Loan with a Poor Credit Score
October 1, 2016

Bad credit score is a terrible place to be as a business owner. Your chances of getting a loan will get slimmer as your credit score depreciates but it is not completely impossible to get a business loan. However, you should understand that loans offered on bad credit are high risk loans, which if circumstances were right for you, you probably would not take them.

Banks will rate the risk of lending to you on your credit score

Banks are very meticulous in checking your credit score when you apply for loan. A credit score of 600 and above is usually the minimum most banks will require from your business for considering your loan application. Depreciation of your credit score is an indication to the banks that you may default if offered the loan facility. If you, however, succeed in securing one, your interest rate will be higher likewise your collateral requirements. The various sources of loans that can be applied for with a poor credit score are as follows:

Read also: Merits and Demerits of Purchase Money and Non-purchase Money Loans in Short Sales

1. The next option is to seek an alternative lending source

Alternative lending sources would normally look at your business records for the past three years and assess how well your business has performed in those years. If your business has not been in existence for up to three years, then, you will need to present a tangible business plan that shows your business projections.

2. Microloans are easier to get with a poor credit

Microloans usually resemble traditional bank loans but they are loan packages offered by alternative lenders. A good example of alternative lenders that offer microloan is credit unions. As the name implies, microloans are very small amounts (usually less than fifty thousand dollars) and because of the limited finance offered, credit requirement will be low.

Read also: A Cash Business Loan might Just be Perfect for a Working Capital

3. Securing credit card with your business name

It is possible to get a credit card in the name of your company. Based on your purchases and prompt payments, you can get financing and begin building up your credit score. The only challenge is that your interest rate, terms of payment and limit to your credit will vary. This variation will be different from one bank or credit union to the other.

4. Merchant cash advance to solve cash flow problems

The greatest limitation to this loan is the very high interest rate. Merchant cash advance which is also known as business cash advance is strictly for those experiencing cash flow problems in their business and would need at maximum, ten thousand dollars. In the end, you will tend to pay more.

Read also: What You Never Knew about the Small Business Administration Loans

5. Revenue based loans have a number of criteria

This is one of the fastest loans you can get (as fast as in a week time) with a suboptimal credit score (at least 550). However, all the requirements must be met by your company to be eligible and they include making an annual sale of one hundred thousand dollars. The applied loan amount cannot be greater than ten percent of your annual revenue.

6. You can fall back on family and friends

The best option when sourcing a loan is to fall back on family and friends who believe in your business, especially when your limitation is primed by a bad credit score. Budding entrepreneurs usually have a high startup capital in mind or have a small family that is also cash strapped and would not want to risk the little they have on you.

Read also: Looking for Ways to Finance Your Company: Try Asset Based Lending

Article highlights

  • Having a good credit score is very critical to getting a loan approval.
  • Different lending institutions will ask for different documents from your business.
  • A credit score of 600 is usually the minimum for banks to consider a loan application.
  • Alternative lenders are easier to convince with a bad credit score.
  • A bad credit score will tag you as a potential defaulter.
  • Family and friends are probably the only ones that will not make use of your business credit score.
  • Microloans are easy to get because of the small size of it.
  • You can use your annual revenue record to source for loans.
  • Family and friends may withhold their funds if your business is viewed as risky.
  • Businesses less than three years old can use their business plan to source for loans.

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