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Applying for a business loan with bad credit

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Getting a business loan is often a great way to get a fledgling startup off the ground, or even taking a small business to the next level. But this option can be difficult if you as the owner, or the business itself, has got a bad credit score. This is where a bad credit business loan might come in handy.

It can often be difficult to get any sort of loan with bad credit, but it isn’t impossible. We’ve put together some guidance on what to do if you’d like to borrow money for your business but you have a bad credit rating. If you’re a business owner or are looking to start your own business, read on to find out more.

Is it possible to get a bad credit business loan?

Whilst most major lenders will be apprehensive about accepting you for a business loan with bad credit, there will be a few minor lenders who will have lower criteria for acceptance. There might even be an alternative financial product that will allow you to borrow as much as you need, within reason.

If your business has a poor credit history then banks will see you as less trustworthy and a bigger risk than someone who has a spotless credit file. The way to get a loan with bad credit therefore rests on reducing the risk for the lender to make yourself meet the eligibility criteria. However, this often means you’re increasing the risk for yourself.

Business loans that come to mind for those with bad credit include a Secured Loan where you use a property you own as collateral, and a Guarantor Loan, where you use someone else’s credit score to get accepted. You will often find that business loans with higher rates might also accept those with lower credit scores, as the lender can recoup more interest in the process of lending to you.

What are the eligibility criteria?

  • Aged over 18
  • Minimum annual turnover
  • Minimum years of accounts
  • Minimum credit score
  • Director’s credit history
  • Permanent UK resident
  • Structured business plan

The different criteria listed above might just be a few used by the lender you’ve chosen, though it’s usually different depending on the financial product you’re searching for. The criteria for generally being accepted for a business loan will require you to have a minimum turnover and a minimum period of activity; usually 2 years.

In some instances, you might even need to put up a certain amount of collateral, in the same way you would for a secured loan. This is often required if you would like to borrow a larger amount of money, but are just a small business looking to grow in size.

Will I be approved?

This is usually dependant on you meeting the eligibility criteria in the first instance, but can also rest heavily on the financial history of the business and you as the owner. The following things might affect the likelihood of you being accepted for a business loan:

  • Business CCJ’s – a County Court Judgement is usually handed out as a result of your business being unable to repay a previous debt and will affect your ability to get a business loan or other forms of credit in the future
  • Winding Up Orders – this court order will usually be imposed to force an insolvent company to go into liquidation, unless the business is able to successfully appeal the decision or repay its debts within the time given. This can damage your ability to get a business loan in the future
  • Visible financial performance – your business will often have public information listed, which lenders will use to judge whether you might be eligible. Make sure all public information is accurate prior to making any sort of application
  • Director’s history – your acceptance will also come down to your history as a businessperson, meaning that lenders are more likely to reject your application if you have a history of failed businesses

Will I pay more due to my adverse credit history?

Chances are that if you have a bad credit score, you will have to pay more to borrow money. However, it’s worth comparing loan offers to see which one is preferable for your business to get the best deal.

As with any bad credit loan, you’re likely to have higher interest rates attached to the loan offer, meaning that if you plan on taking the business loan out over a longer period, it will be more expensive to repay than a standard loan.

Having a good credit score means that you will have access to better loan offers with lower rates, and even a more diverse selection of financial products such as credit cards, cash advances and even government grants to help your business grow.

How can I improve my business’ credit score?

Like a personal credit score, there are several things you can do to slowly improve your credit score. In general, if you can prove that you can borrow money and comfortably pay it back then your credit score will slowly start to increase month-on-month.

Try the following tactics to get your credit score for your business back up to standard:

  • Get a credit report and fix any errors
  • Manage your debts
  • Reduce your spending
  • Keep credit card balances low
  • Use eligibility checkers before applying

Start comparing business loans

Have you found out more information about applying for business loans? If you’re happy to go ahead and start comparing business loans, why not try our comparison service powered by Funding Xchange. Good luck!

Robert Bester