Your business credit score is just as important when it comes to obtaining small business funding as your personal credit score is in obtaining a personal loan or credit card.
Businesses with lower credit scores are considered higher risk borrowers, on top of the higher risk category that most small businesses already exist in. This translates to a difficulty in finding small business funding for many small businesses with less than great credit.
Lenders are naturally risk-averse, since a low credit score typically can mean the likelihood of a merchant or small business repaying its small business loan or other debt is lower than average.
However, credit scores don’t always tell the full story. Non-bank or financial institution lenders, such as BizFly Funding, are focused on providing small business funding options for every small business, including those with bad credit.
Learn more about bad credit business finance, how to understand your credit score, and the small business funding options available from BizFly Funding in this article.
Understanding a Credit Score
First, it’s important to understand what a credit score is, and what impacts it. The most common credit score that lenders use is the FICO score, from the Fair Isaac Corporation (the origin of the name).
The FICO score utilizes information from all 3 major US credit bureaus – Experian, TransUnion, and Equifax – and calculates a single score as a measure of creditworthiness.
This falls on a scale from 300 to 850 for individuals and small businesses that file as individuals, and 0 to 100 for businesses in general, with a separate small business service that ranges 0 to 300.
The exact method that applies for your business, and the ranges that are considered good, bad, fair, poor, and average may vary from lender to lender.
Having bad credit, as an individual or a business, is not ideal. It usually means it is harder to access credit and loans, and when you are approved for those products, you typically have to pay higher interest rates.
This correlates to the higher risk that you are perceived to be by the lender. Accessing small business funding is critical to business survival, but is a real challenge for the people who need it most.
Even with collateral, looking at secured loans, it can be a challenge to qualify for customers with bad credit. Your personal or business credit score can be affected by a number of different factors.
Derogatory items that can reduce your credit score include:
- Maxed-out credit cards or lines of credit
- Late payments/delinquencies on debts
- Debt settlements
- Foreclosure or bankruptcy
- Large outstanding balances as a percentage of total available credit
- Defaults on debt or accounts referred to collections
How to Get a Business Loan with Bad Credit
All of this might seem like bad news if you have bad credit. Fortunately, there are options for bad credit business finance, especially outside of the traditional bank arena.
Following changes to financial laws in the late 2000s, after the Great Recession, many businesses – even those with otherwise good credit – were having trouble securing financing.
Many alternative, non-bank lenders have stepped in to offer these higher-risk businesses the kind of credit and loan products they need to fund their operations. BizFly Funding is one such non-bank lender, focused exclusively on small business funding.
Turning to an alternative lender such as BizFly Funding can provide small business owners with the access to credit that they require, at competitive and affordable prices, and without taking weeks or months to get approved.
The simple answer to, “How to get a business loan with bad credit?” is to seek out an alternative, non-bank lender like BizFly Funding. There are generally fewer, minimal eligibility requirements for loan qualification with this class of lender.
Credit score is not the only consideration, either, unlike with traditional banks. Most alternative lenders look at business history/time in business, monthly revenue, and other factors, in addition to credit score.
They are much more willing to consider the whole picture, and not base everything purely on a credit score. This can be invaluable for small business owners, who are in need of small business loans or other small business funding products.
Small Business Funding Options
There are several different options for bad credit business finance, depending on your specific needs and qualifications.
While naturally every loan an every borrower is different, in general, the minimal credit score, revenue, and time in business requirements for each of the different lending products available from BizFly Funding are explained in more detail below.
Small Business Loans
Unsecured (no collateral required) small business loans are a staple of the offerings from BizFly Funding.
With flexible loan amounts, various repayment options and loan terms, and competitive interest rates, small businesses can secure significant funding for their operations without the need to put up any collateral.
This is possible even with bad credit. Bad credit business loans are available for companies with a credit score of 450 or above, who have been in business for at least 2 months, and who generate at least $8,000 in monthly revenue.
This can be an exceptional form of bad credit business finance, as those requirements are not hard for most small business owners to satisfy.
Merchant Loans/Merchant Cash Advances
Merchant loans, in the form of merchant cash advances, can also be a great way to access a large, lump-sum amount of cash, without worrying too much about where the repayment funds will come from.
Merchant cash advances work by providing a cash advance loan, which is then repaid by deducting a certain percentage from future credit/debit card sales. The repayment isn’t tied to a specific calendar date or schedule, but is dynamic and based on the amount of sales.
This is ideal for customers who have seasonal or cyclical businesses, or variable sales patterns – it helps prevent large debt repayments coming due during a business downturn.
It’s one of the best bets for bad credit business finance, as even a very poor credit score is still acceptable. MCA loans require a minimum 400 credit score, 6 months of business history, and a monthly revenue of at least $6,000.
Business Lines of Credit
A business line of credit offers a flexible, revolving facility for you to borrow just what you need to pay for your business expenses and day to day operations. You don’t get a lump sum up front, but rather are approved for a certain credit limit.
Then you can borrow against that limit, and repay as you go, and borrow again. It’s a great safety net or additional tool for many small business owners, which is often preferable to a small business loan.
The requirements are a bit harder to meet for bad credit business finance customers, however. A business line of credit requires a 550 or greater credit score, 6 months of business history, and at least $10,000 per month in revenue.
Short Term Loans
A short term loan, as opposed to a traditional, medium-term small business loan, may be ideal to manage your cash flow or immediate expense issues. And they are readily available for those with bad credit, too.
Loan amounts can vary, as can the repayment terms and interest rates. By definition, they usually have a loan term of a year or less for repayment.
These are the hardest type of small business loan to qualify for as a bad credit business finance customer, with a minimum credit score of 600, 1 year of business history, and monthly revenue of $10,000 required.
Debt Consolidation Loans
One way to improve your credit score and get ahead on your finances when you are a bad credit business finance customer, is to take out a debt consolidation loan.
You can consolidate multiple loans, lines of credit, and other debts into a single loan, often at a lower interest rate than you were paying on your multiple debts. You can also save money via reduced service fees, with a single loan vs. many from multiple services.
And, you save time, by only having a single repayment to worry about rather than multiple spread across different parts of the month.
Business Loan with Bad Credit from BizFly Funding
While this option may not provide new small business funding, it can help you get your business funding in order, under control, and boost your credit score.
Then, you can always apply for a small business loan or another bad credit business finance option once your credit score improves.
Debt consolidation loans from BizFly Funding require special attention and review of your financials, so there is no base credit score or business requirements – it varies by customer.
So contact us today to discuss your options, and we’ll find one or more that’s ideal for your small business funding needs!
