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Business loans you could get with bad credit
Your credit history doesn't have to lead to a dead end. Find the way forward with a bad credit business loan.
Applying for a loan usually involves getting a credit check. But what if you don’t have good credit? Fortunately, many business loan providers are willing to consider your business’s assets and earnings when deciding whether to give you a loan. So, you may be able to get what you need even without stellar credit.
What’s considered bad credit?
Lenders will generally look at the personal credit histories of company owners, and, if the business is established, they may also look at the business’s credit score and credit report. If you have bad credit – which could come from defaulted payments, missed payments, late payments, multiple credit inquiries and/or a high credit utilization ratio – you may find it difficult to be approved for small business financing, but you have options.
Personal credit score
A bad personal credit score is typically one that’s below 600 (ratings usually range from 300 to 900, with 900 being the best). Credit scores can vary between Canada’s two main personal credit reporting bureaus: Equifax and TransUnion.
Business credit score
Business credit scores can vary between Canada’s three main business credit reporting bureaus: Equifax, TransUnion and Dun & Bradstreet (D&B).
Equifax issues four different business credit scores:
- Credit Information score (0-70 where 41+ is high risk)
- Business Failure Risk Score (1,001-1,722 where higher is better)
- Commercial Delinquency Score (101-662 where higher is better)
- Payment Index score (0-99 where 60+ is high risk)
TransUnion’s business credit score ranges from 400-800, with 800 being the best.
The D&B Commercial Credit Score ranges from 101-670, with 670 being the best.
What’s the difference between a personal and business credit report?
Both your personal and business credit report contain information that helps lenders and creditors determine if they want to do business with you. Your personal credit report is based on historical information about your credit accounts such as student loans and store credit cards. On the other hand, your business credit report is based only on accounts taken out under your business’s name.
- Personal credit report. Your personal credit report includes your name and other personal information, details of consumer credit accounts you’ve held, any negative listings such as defaults or missed payments and information on the public record such as bankruptcies and court judgements.
- Business credit report. Your business’s credit report will include the company’s structure and its shareholders, the company’s credit information including applications and defaults.
How can I get small business financing with bad credit?
Traditional banks may be tough on businesses with bad credit, but alternative financial lenders tend to have more relaxed criteria. You could also apply for a different type of loan or put up business or personal assets as collateral.
Secured bad credit business loans
If you apply using assets as collateral, the lender may be more ready to approve your application. Here are a few things to keep in mind when applying for a secured business loan:
- Assets such as business equipment, vehicles, property and funds in savings accounts can be used as collateral for a secured business loan.
- These kinds of loans are generally granted by banks. Terms and conditions differ, so it’s a good idea to shop around for the loan that suits your budget.
- Since your application is secured with collateral, you generally benefit from more competitive interest rates and flexible repayment terms.
- If you can’t make your repayments, the lender will sell your assets to cover what you owe.
There has been a growth in the number of alternative lenders offering loans to business owners with less-than-perfect credit or with no collateral required. Alternative providers include non-bank business lenders and peer-to-peer marketplaces. Here’s why many business owners turn to alternative lenders:
- They offer a selection of small, short-term loan products.
- Bad credit history isn’t a determining factor, you just need to show that your business is able to repay.
- Responsible borrowers can be rewarded with better rates the next time they apply for a loan.
- Loan terms are tailored to what you can afford.
- Many alternative lenders don’t require security for the loan amount.
- The application is quick, often with same-day approval.
If you have outstanding invoices that are locking up your cash flow, you can consider invoice factoring. Invoice factoring involves selling your unpaid invoices for a fee in order to receive the outstanding payments more quickly. This option is becoming increasingly popular among business owners because:
- Bad credit history isn’t a factor.
- No real estate is required as collateral.
- You have the option to finance some or all of your invoices.
- You can enter into an ongoing arrangement with the factoring company.
Even with bad credit history, you can get the cash boost your business needs with terms to suit your financial situation. It’s important to compare your options to find the right type of finance available to your business.
How should I compare bad credit business loan options?
There are a few options you can consider for your business. Here’s how to find the one that best suits your business needs:
- Flexibility to fit your business cash flow. Small business loans vary in repayment terms, loan amounts and other features. Your cash flow estimates should show when periods of fluctuations occur, and therefore what type of repayment structure and loan type may suit your business.
- Affordability of the loan. What’s the interest and comparison rate? The latter will give you an indication of the true cost of the loan. It includes interest and fees that come with the loan. You can use a business loan calculator to help you determine whether you can afford it. It’s important to apply for a loan you can afford. If lenders feel you can’t, they will reject your application. Additionally, getting into debt you can’t afford will lead to long-term financial difficulties.
- Loan term. While banks tend to offer minimum loan terms of one year with standard business loans, alternative lenders have been offering terms as short as three months, giving you a range of terms to choose from. You also have business lines of credit and overdrafts to add to your comparison – each have no set due date.
- Features to fit your preferences. Identifying your business needs should help when comparing your options. If you have a startup, you may be unsure of your cash flow projections and may want the ability to increase your loan in the future. If you’re taking out a loan to buy stock that will be sold in the next six weeks, you probably won’t want a loan lasting longer than a year.
Compare lenders who offer asset-based financing for businesses
Your best bet if you have bad business credit is to find a lender who focus on other aspects of your business when determining whether you fit the bill for a small business loan. The lenders below offer invoice financing and other products designed to suit a range of business needs.
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