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Having bad credit can happen to any business owner by simply forgetting to pay a bill or by your business being low on cash flow. These things have lowered your credit score and your business can in turn be in a challenging financial situation.
Having bad credit is a serious thread to businesses and might prevent you from securing a business loan. To maintain your business’s operations, it is important to have financial liquidity, which is why business seek additional financing. If your business credit score is too low, it can be hard to get the funding you need. If you started a business recently and are new, it can be more difficult to qualify for a loan with poor credit.
Fortunately, there are loan options for businesses with low credit scores. In this post, you will find the steps you can take to qualify for a term loan if you have been declined due to having poor credit in the past.
How to Apply for a Small Business Loan with a Bad Credit Score
Consider alternative business funding options
Many business owners do not realize that loans are not their only financing option. A merchant cash advance can be a good viable option if you accept frequent credit card payments. Making cash advances is a good fit if you have poor credit because credit history is not as important during the application process.
A line of credit is also another good option to consider if you have a bad credit score.
Apply for SBA Loans
You might benefit from SBA loans if you have tried all the other forms of financing and have not been successful. With the SBA, they will guarantee a certain portion of the loan, which makes it lower risk for lenders. Although the businesses that the SBA works with must have exhausted traditional options like bank loans, the SBA still requires businesses to have credit scores of 650 or higher.
Regardless, SBA loans are great options and businesses who have low credit scores should see if they can qualify for SBA programs.
Ask family and friends for help
Asking family and friends for help is great if you have low business or personal credit. Personal networks are one of the most common sources of financing for new businesses.
Even though it might seem like a simple, safe option, everything should be done in writing. That way there is proof if you ever need to refer back. Having a signed contract will protect both parties.
It is important to note that financial relationships can cause tension with family and friends. Although having business financing is important, you should make sure that your relationships can withstand this dynamic before asking for a loan amount.
Crowdfunding
Crowdfunding is a popular method for financing. You will need to create a profile, explain your business goals, and share the campaign so you can reach investors who might be willing to invest. Often, you will offer a product or service in exchange for donations.
It is not recommended that you rely on crowdfunding campaigns as many crowdfunding websites are becoming crowded with entrepreneurs. You need to create an interesting pitch and offer products or services in exchange. The more innovative you are, the great your chance of securing funding is going to be.
Apply for a business credit card
There are a variety of business credit cards available for small businesses including options available to business owners with bad credit. However, a low credit score means you will receive higher interest rates and lower credit limits.
Secured credit cards are a good option for businesses with poor credit. Your credit card is secured with a deposit that will cover your minimum payment. This reduces the risk for lenders allowing them to extend credit to businesses with less than perfect credit.
Improve your credit
If you have tried all the options above and still have not been able to secure financing, you should try to improve your credit score. By improving your credit, you will increase your chances of approval when you reapply.
