Your credit score can affect your small business’ ability to acquire capital. Lenders want to work with business owners who have favorable credit scores since they consider it an indicator of whether they will be repaid. If your business has a limited credit history or a bad credit score, you might want to apply for a bad credit business loan.
Bad credit business loans are fit for business owners with a FICO credit score that is between 300 and 629. If your credit score is in between this range, you will be likely be unable to secure a loan from a traditional lender.
You can pursue a bad credit business loan to meet your financing needs. These loans are characterized by higher interest rates but if you need financing it might be your best option. Below we will provide four ways that you can utilize a bad credit business loan to improve your overall operations.
Repay Debt
You should avoid creating a cycle of debt as a business owner. Applying for a loan to pay off old debt is an undesirable option, there are circumstances in which it might make sense. Using a bad credit business loan to repay old debts might be a good option if the interest rate on the new loan is less than the interest rate on previous loans. Applying for a new business loan can help your business avoid bankruptcy.
Pay Overdue Taxes
Although owning debt to a traditional lender may be problematic, being in debt to the federal government is worse. If you own taxes to the IRS or government, paying off the debt should be your highest priority.
If the debts are not managed properly, debts owed to the government will multiply quickly. Additionally, depending on the nature of your business, these debts can cost you your personal property or even carry criminal charges.
As a small business owner, it can tempt to spend money that you should be saving for tax purposes. If it is time to pay your taxes and you realize you are unable to, a bad credit business loan may provide a solution that is temporary.
Invest in Equipment
Many small business owners find themselves in a common dilemma where they need to improve their equipment to increase revenue but cannot improve their equipment until enough revenue has been generated.
A bad credit business loan might be able to help you avoid this issue. If your business needs a simple equipment repair to get back on track, this loan can be useful.
Expand Your Business
The cost of producing a single unit decreases as your business expands. Many businesses if you are struggling on a small scale, you have the potential to become financially viable once you expand.
You must have a sold business plan in place if you are thinking about expanding your business. Expanding your business is not something you should do recklessly because there is no guarantee it will help you enable it.
Most bad credit business loans are typically available for up to $50,000. Although those loans will not turn your business into a million-dollar company overnight, it can help with an expansion project.
The Bottom Line
There are both negative and positive aspects of the bad credit business loans. The downsides of a bad credit business loan that will carry a high interest rate for a limited amount and have non-negotiable terms. For many business owners with bad credit, these loans are the most viable option for paying off old debt, improving equipment, and expanding a business. Conduct research and plan carefully to see if a bad credit business loan is worth considering.