Can I get a business loan with bad credit?
Yes. As mentioned above, we have a number of options available. There are a lot of different routes of funding available and the business loan market continues to grow.
Although funding through your bank might prove tricky, there are plenty of specialist lenders out there ready to support your business, despite previous credit problems.
What are the options?
Here are the choices available when looking to secure a bad credit business loan:
Unsecured business loans
Unsecured business loans used to be the domain of the high street banks, but that’s all changed with a number of peer to peer and specialist lenders entering the market. An unsecured business loan can be arranged for most businesses, as long as the loan is considered affordable.
Unsecured lending usually has the strictest criteria as the lender is at high risk of financial loss should you fail to keep up the repayments. Adverse credit may make it very difficult to qualify for unsecured lending at a reasonable interest rate.
Secured business loans
These loans work in much the same way as the unsecured variety, expect they are backed by a charge over a property. This can be either your business property, your home, or an investment property.
As security is offered to the lender, their risk is reduced, meaning your application has a much greater chance of approval.
Asset finance is a great option for businesses that have lots of assets but are struggling for capital.
Asset finance can be used to raise money against existing assets, or for buying new ones. As the item is taken as security for the loan, the risk to the lender is lower, increasing the chances of your application being accepted.
Merchant Cash Advance
Merchant cash advances are ideal for businesses that take a large amount each month through their card terminal. They allow you to raise funds quickly and repay the lender by automatically taking a set percentage off each card sale and paying it directly to the lender.
The acceptance rates for merchant cash advances are very high as repayments are automated through the card terminal.
Invoice finance is another popular option for businesses with a poor credit history. If the business is owed a lot of money at any one time through invoices, there is a good chance that they will qualify for invoice finance.
Once arranged, the lender releases a high percentage of the value of any acceptable invoice issued as soon as its raised, easing the cash flow of the business. Invoice finance is an excellent tool for businesses who must accept delayed payment terms.
Will I pay more due to my adverse credit?
The rate charged will usually be slightly higher if your credit history is poor. How much higher is down to the type of product chosen and the security offered to the lender.
Unsecured business loans offer very little security to the lender in the event of payments falling behind, meaning the rate charged will tend to increase sharply.
Asset finance, on the other hand, offers strong security to the lender, meaning they are less likely to lose money in the event of default. As a result, the increase in the cost will be much smaller than products with less security.
The key to ensuring your costs don’t increase too much is to offer more security to the lender, wherever possible.
How quickly can I expect to receive my funds?
This all depends on the type of funding you choose, some are quicker than others. In most cases, you will receive your funds in under 2 weeks.
Where funds are needed urgently, let us know and we’ll advise you on the best options based on your circumstances.
Some types of finance can be arranged in a matter of days.
Do I need to be a homeowner?
You don’t have to be a homeowner to get funding for your business. That said, the chances of your application being approved will increase dramatically if security is offered over a property.
Unsecured loans offer very little opportunity to the lender to get their funds back in the event of default and as such, keeping up repayments is of the utmost importance.
For this reason, your previous payment record is very important where lending is unsecured.
How can I improve the chances of my application being approved?
As mentioned above, offering security to the lender can significantly improve your chances of being approved. Other forms of borrowing including invoice finance, asset finance and merchant cash advances may also easier to secure than an unsecured business loan.
Where you have suffered CCJs and defaults, repaying these before applying for more borrowing will improve your chances of success. This shows the lender that you’re happy to pay your debts, even if you run into hard times in the interim.
Where the business has suffered poor results in the past, the more detail you can provide around how those issues arose and why they will not happen again, the better. This may include detail of new contracts that you have, previous directors who have left the business and even changes to the way you trade or market the business.
Does my personal credit history affect my application?
Yes, if your business is performing well, but the major shareholders and directors have adverse credit, your lender may not be comfortable lending. Although you are a separate legal entity to the business, your personal financial management is seen as a reflection of your ability to manage a company’s finances.
As such, if your business has a strong credit history but you have issues personally, you may need to provide security or provide further detail in order to see your application approved.
The best ways to improve your credit score
When you’re not looking to raise funds quickly, it may be worth trying to improve your credit score to get more favourable terms.
There are a number of ways to do this, with the most effective being:
- Where there are inconsistencies on Companies House, correct them.
- Where possible, pay off any CCJs and defaults.
- Limit the number of credit checks done on both yourself and your business.
- If you’re not personally on the electoral register, join it.
- Make sure you pay all invoices and bills on time.
- Ensure your accounts and annual returns are submitted on time and accurately.