Yet, too often, many small businesses have trouble getting approved for small business funding, and get stuck on the qualification stage. Newer small businesses generally have a limited credit history, and may have had early financial struggles, resulting in a bad credit score.
Since many lenders have fairly strict minimum credit score requirements, and yet credit or loans are required for businesses to build their credit score and history, what should a small business owner do?
The answer is to turn to bad credit business funding, typically small business loans for bad credit customers!
What are Bad Credit Business Loans?
Bad credit business funding, especially bad credit business loans, are functionally no different than the kind of small business loans and funding available to companies with higher credit scores.
However, they are specifically designed by lenders to be easier to qualify for, in the form of relaxed credit score requirements, and possibly relaxed requirements in other areas (revenue, time in business, and similar) as well.
There are still minimum requirements, of course, in order to qualify for a bad credit business loan, and interest and other terms are also involved.
But, in general, the reduced credit score requirements mean a much wider array of businesses, at all stages of development and maturation, with various credit profiles and scores, can access much-needed capital.
Why Credit Scores are Used for Lending Decisions
Credit scores have long been a sore spot for many individuals and businesses seeking loans or financing.
They were originally developed to help lenders have a uniform measure of risk – an at-a-glance number that could be used as a reference for how likely a borrower was to repay their loan in full and on time.
Over the years, however, the credit bureau and score system has become more complex, and relied upon far too heavily – often to the exclusion of other factors – in order to make lending decisions.
Rather than a metric, it has become a gate in the process, shutting many responsible and deserving customers out from the funding they need. Bad credit business loans and small business funding options for bad credit customers are helping to reverse this trend.
Most companies who offer bad credit business funding recognize that the early years of a small business’ life may be marked with financial challenges, and credit scores or history may be limited or not the greatest.
This doesn’t mean the businesses aren’t financially sound or responsible borrowers, however.
Therefore, in an effort to provide greater access, lenders offering small business loans for bad credit applicants de-emphasize the credit score, and thus create much lower credit score minimums that must be met in order to qualify for funding.
Small business loans for bad credit applicants de-emphasize the credit score, and thus create much lower credit score minimums that must be met in order to qualify for funding.
Banks vs. Private Lenders for Bad Credit Business Funding
When it comes to sourcing loans for bad credit businesses, there are two general categories of lenders from which to choose. On the one hand, you have banks, and the other, private lenders.
Without getting too deep into the details, let’s just say that banks are highly risk-averse, and don’t tend to offer bad credit business funding at all.
If they do, it’s almost always with higher credit score minimums than private lenders. It’s also usually secured, meaning you must put up collateral in order to obtain the small business loan you need.
By contrast, private lenders usually offer unsecured bad credit business loans, with much lower credit score minimums, and are able to quickly service some 40-50% of the business credit score spectrum.
Compared to the tiny sliver at the very top of the spectrum served by banks, it’s no surprise that many small business owners prefer private, non-bank lenders as their source for bad credit business loans and other forms of bad credit business funding.
How to Get a Small Business Loan with Bad Credit from a Private Lender
There are a range of private, non-bank lenders offering small business loans for bad credit customers today.
Most have a few basic requirements that any applicant needs to meet, including:
- Residency or jurisdiction requirements (state, regional, or national in many cases)
- Minimum credit score requirements
- Minimum time in business requirements (usually a few months to a year)
- Minimum monthly revenue requirements (often a few thousand to ten thousand dollars or so for smaller bad credit business loans)
- Documentation requirements, wherein you submit copies of your financial statements, business license, and related paperwork, often online
- Some lenders offering funding for small businesses with bad credit may require collateral or a personal guarantee, but most don’t
Once you’ve reviewed the lenders you may be considering for your small business funding, you can often start the outreach or application process online via their website.
Some lenders have parts of the application process automated, and then follow-up directly once you’ve cleared the first application hurdle and met the minimum eligibility requirements, which makes the process much faster.
In general, approval rates are fairly high for applicants who meet the minimum qualification requirements and are in good financial health, especially when seeking bad credit business loans from a reputable, private lender.
This enables many small businesses, even those who are newer or have somewhat bad credit, to obtain vital small business funding, grow their business, improve their credit score, and go on to be tremendous successes!
Bad Credit Business Funding from BizFly Funding
If you are in need of bad credit business funding, whether in the form of a small business loan with bad credit, merchant cash advance, or debt consolidation loan, consider applying at BizFly Funding.
BizFly Funding is one of the leading US small business lenders, offering a full range of unsecured small business funding products, including bad credit business loans.
Requirements are easy to meet, application and approval is easy, and funding is fast – as little as 1 business day in many cases.
With outstanding customer service and a focus solely on small business funding, BizFly Funding is a go-to private lender for many small business customers today – including those who have bad credit or a limited credit history.
To find out more or to start the application process online, visit BizFly Funding at https://bizflyfunding.com.
Frequently Asked Questions about Bad Credit Business Funding
Every lender who offers bad credit business loans will have different minimum requirements or eligibility requirements in order to qualify.
This is true of any kind of lending and credit or loan products, with every lender reserving the right to set their own criteria.
In general, however, small business loans for bad credit customers are designed with relaxed credit score requirements, so that companies with poor credit or a limited credit history can still qualify.
Where ordinary small business loans, especially those offered by banks, may have credit score requirements in the 700s, private lenders may offer bad credit business funding with minimum credit scores as low as 600, 550, or even 500 in some cases.
In most cases, applying for small business funding doesn’t have any impact on your credit score.
Until you sign and take out a loan or credit line, no items go on your credit report based on requesting a funding application.
In some cases, lenders may require a “hard pull” of your credit, which shows up as an inquiry. Too many of them over time can lead to a lower score in the short-term.
Most modern lenders, however, use so-called “soft pulls” that don’t act as an inquiry on your report.
So, in general terms, no, applying for small business funding will not hurt your credit score.
Most bad credit business loans, like most forms of small business funding, will have several minimum eligibility requirements, which vary significantly by lender.
Most often, a minimum credit score, minimum number of months in business, and minimum monthly revenue level must be met.
Some lenders may require collateral or a personal guarantee in order to qualify, which is usually the case for secured (rather than unsecured) loans and credit products.
Additional documentation and requirements may be present, and will also vary by lender.
Banks are generally a poor source of bad credit business funding.
Most banks don’t like high-risk lending, and small business financing is seen as high risk to begin with, let alone when a business has a poor credit score.
Banks are more likely to rely on credit scores for qualification, and automatically screen out the riskiest applicants.
As a result, many forms of small business funding from banks come with high credit score requirements, in the 700, 750, or even higher range, putting them out of reach of businesses with bad credit.
For that reason, most small business owners in need of loans – with or without bad credit – often prefer private lenders.
Private lenders have much more generous and minimal qualification requirements, making it easier to obtain small business loans with bad credit.
If you are applying for a bad credit business loan that is secured, then you usually will need to provide collateral.
Banks almost always only offer secured small business funding options.
Many small business owners don’t wish to risk limited assets for collateral, and instead prefer unsecured small business financing.
That kind of financing is more readily available from private, non-bank lenders.
It may require a personal guarantee of repayment, depending on the lender, but collateral is not required to be put up to secure the loan.
