It can make it much harder to access valuable credit and loan products to fund your business. Logically, it follows that if funding dries up, and you rely on funding for your operations, bad credit can be a serious detriment to your business.
However, these days, small business owners have more options than ever before to obtain small business funding, including bad credit business loans.
Bad credit or a limited credit history no longer needs to be the death knell for your business! In this article, we’ll explore everything there is to know about business funding with bad credit. We’ll talk about why small businesses fail with regard to their access to funding.
Additionally, we will highlight the shortcomings of credit scores, and the problems that newer small businesses face in building a credit score in the first place.
Then, we’ll dive into the details on bad credit business loans, and focus on the best place to obtain a bad credit business loan for your small business. Finally, we’ll answer some frequently asked questions about small business financing for bad credit businesses. So let’s get started!
Why Small Businesses Fail – Lack of Access to Funding
Time and time again, when studies and surveys are conducted among small business owners who have had their small businesses fail, a lack of access to funding, or inability to secure funding, is the number one cause cited for their failure.
This makes total sense, as small businesses, especially those that are relatively new, are not going to have significant cash reserves on hand. Likewise, they may have a limited amount of assets that could be used as collateral for secured loans or funding products.
Many newer small businesses also have a limited credit history, or may suffer from a bad credit score. This is naturally much more likely when a small business is in its infancy than when it has been established for years and years.
All of these factors combined mean that obtaining business funding with bad credit, no credit, or a limited credit history – preferably without the need for collateral – can be do or die for most small businesses in their first years of existence.
Yet, it’s in these early years that funding is more vital than ever to enable the business to operate, seize opportunities, and grow.
Therefore, bad credit business loans and other kinds of business funding with bad credit play a critical role in ensuring the viability of small businesses – a major portion of global economic productivity.
The Challenges of a Business Credit Score for New Small Businesses
Many businesses struggle to establish a credit score when they are first starting out. It’s a bit of a classic paradox – you need a good credit score in order to access loans and credit products, but need loans and credit products in order to build your credit score.
Even well-managed and profitable small businesses can have difficulty in building a credit file, and certainly in maintaining a high credit score.
This is exacerbated further by the natural variability in sales and market conditions, which can impact newer small businesses more dramatically than their larger, more established corporate counterparts.
What all of this amounts to is that working capital loans for small business with bad credit are vital, and providing capital and financing for small businesses needs to take into account that credit scores are not always a good measure of the economic viability or soundness of a business.
This is a common complaint made about personal credit scores as well – they don’t accurately reflect the risk or creditworthiness associated with an individual, or in this case, a business, and should not be overly relied upon as the main metric for lending.
Fortunately, bad credit business loans and other business funding with bad credit – especially those offered by non-bank lenders – respect these facts, and often de-emphasize credit scores in the requirements or eligibility criteria to access their loans.
How Bad Credit Business Loans Can Save the Day
Bad credit business loans – which can take several forms – are a kind of blanket term for loans and some credit products that are available to businesses with poor credit scores or limited credit history.
The exact qualification requirements in terms of credit score and other metrics will vary from lender to lender.
In general, however, these kinds of small business financing for bad credit businesses allow a generous portion of the credit score spectrum – often the top 50% or more – to access much-needed capital at fair rates and in large amounts.
It is not uncommon to find you can qualify for a business loan with a bad credit score as low as 600, 550, or even less – which would be well below the threshold of eligibility with most traditional financial institutions and bank lenders.
In all other respects, bad credit business loans act just like any other business loan – providing a lump sum of cash to the business, which is then repaid over a pre-defined term, with interest.
They can be secured (requiring collateral), or unsecured, depending on the lender and eligibility criteria.
For many businesses, especially those just starting out, unsecured bad credit business loans can be a lifeline to keep their business afloat, fund their operations, and work to improve their credit score (and bottom line) through the turbulent first few years of their business.
The Best Sources for Small Business Financing with Bad Credit
Banks and traditional lenders rely very heavily on credit scores in order to make their lending decisions.
They also maintain fairly rigid and hard-to-meet criteria of eligibility, so that they effectively only offer their loans and credit products to a thin sliver of the top of the credit score and risk spectrum.
They do this as a means to manage risk, since most banks and traditional lenders also have depositor accounts, and therefore must meet strict financial coverage requirements (which only got more demanding following the financial crash of ‘07/’08).
By contrast, private non-bank lenders don’t have these same restrictions, as they often only lend money, and don’t take deposits. They can set their own risk thresholds, and make their own determinations as to risk and creditworthiness – without overly relying on a credit score.
This enables private non-bank lenders to offer bad credit business loans and serve a much wider swath of the small business community. As a result, these kinds of private lenders are often the best source for small business financing with bad credit.
Bad Credit Business Loans from BizFly Funding
If you run a business that is struggling to access capital due to a poor credit score or limited credit history, don’t panic or despair. Instead, visit BizFly Funding’s website at https://bizflyfunding.com.
BizFly Funding offers bad credit business loans, along with many other small business funding products. They are a leading private lender in the US, and work only on small business funding, so they have a much greater tolerance for risk than banks or traditional financial institutions.
With outstanding customer service, a fast and easy application process, and funding often available in as little as 1 business day, BizFly Funding is a great way to get a loan, even if you have bad credit.
Frequently Asked Questions about Business Funding with Bad Credit
One of the most common questions about how to qualify for a business loan with bad credit is how bad is “too bad,” or, put another way, what credit score is the minimum threshold to qualify for a bad credit business loan.
This will naturally vary from lender to lender, as every lender can set their own criteria. In most cases, private non-bank lenders offer bad credit business loans with a minimum credit score requirement in the 550-600 range.
Some of the more generous lenders may offer loans with even lower credit scores, at 525, 500, or even below.
This is in addition to other requirements or eligibility criteria, which often include certain minimum monthly revenue levels and a certain period of time (often several months rather than several years) in business before applying.
In general, a line of credit is one of the more difficult types of small business financing for bad credit customers to qualify for, as it is a higher risk product from the standpoint of a lender.
It’s not necessarily the best choice for businesses struggling with a bad credit score or limited credit history. For that, a bad credit business loan is usually the easiest to obtain.
As mentioned above, it’s generally agreed that bad credit business loans are the easiest kind of loan to get when your business has a bad credit score or a limited credit history.
They are designed to be highly accessible for businesses with poor credit scores, specifically to ensure access to vital business funds.
Business loans can have positive or negative impacts on your credit score, depending on the details of your credit file, and how you handle these loans.
Increasing your outstanding debt levels generally decreases your credit score in the short term. However, successfully and consistently making the required payments on a loan or credit product is vital to building and increasing your credit score.
With responsible use of a business loan, including a bad credit business loan, you can ultimately end up dramatically improving your credit score. Irresponsible use, including default or late payments, can likewise hurt your credit score.
There are many ways to raise your business credit score, though most of them involve successfully using credit and loan products – which of course, means you have to qualify for them first.
A bad credit business loan that is used responsibly and repaid on time is one of the best ways to improve your credit score over the long term.