Building a good credit history and credit score is also among the critical tasks early in a business’ life that can make or break their long-term success.
Unfortunately, it’s not always easy to build up your credit file, or to establish a solid credit score. The volatile world of entrepreneurship and small business can take a toll on even the most disciplined business leader.
At the same time, accessing loans, lines of credit, and other forms of small business funding is vital to fund operations, projects, and growth. Almost half of all small businesses that fail cite inability to obtain needed funding as the reason for their failure.
This underscores the absolute critical nature of small business funding to the long-term health and viability of small businesses. Yet, business loans for bad credit customers can be hard to find from most major banks and funding sources.
The businesses who most desperately need access to credit and loans often are the ones that have the hardest time obtaining them. That’s what makes bad credit business loans from private lenders so valuable and such a lifeline for small businesses operating today.
Why Businesses Struggle with Bad Credit or Limited Credit History
To start, it’s important to understand how a credit history and credit score are built up over time, and the role they play in small business funding. When a new business starts operation, they effectively have a blank slate in terms of a credit score.
Just as a personal credit score is defined by the accounts you have open, amount outstanding on any loans or lines of credit, total credit utilization, late payments, and similar, so too is a business credit score defined.
Start-up loans and venture capital funding can help businesses get off the ground, but in short order, they are usually in need of additional funding, and may have little or no credit history yet established, a so-called thin credit file situation.
At the same time, the early years of a small business’ operations can be fraught with difficulty. Even if you have excellent customers for your products or services, accounts receivable may not always hit on a time schedule that works for your cash flow and expense needs.
Without a massive buffer of cash on hand in the bank, this often results in small businesses being late on some vendor or service provider payments, or over-extending themselves on credit cards, all of which add up to dings on their business credit score.
Quite rapidly, businesses can find themselves falling into a credit hole, making it progressively harder to qualify for new business funding with bad credit, as their credit score continues to decline.
The Challenges of Obtaining Business Funding with Bad Credit through Banks
Having bad credit can make it virtually impossible to obtain loans or lines of credit through banks and traditional financial institutions – despite the fact that a company with bad credit needs the chance to improve, via loans and credit products, in a vicious cycle of feedback.
Banks and traditional lenders have a very low tolerance for risk in their lending operations, and see most small business lending as risky to begin with.
Add to that the capital coverage covenants that were put into place following the financial crisis of the late 2000s, and it’s not hard to see why so many banks either don’t offer small business loans for bad credit customers, or impose ridiculously high credit score minimums.
In both cases, this shuts out the vast majority of small businesses from gaining access to small business funding through banks. In addition, many banks who do offer small business loans and credit products typically only offer the secured version of those products.
Secured loans and credit lines require collateral from the borrower, to reduce the risk to the lender. Many small business owners simply cannot or do not want to risk their limited assets to secure a loan.
The way in which banks and lenders value collateral also means that secured forms of small business funding may require assets pledged worth 3-5x the value of the loan to be taken out.
It also means a lengthy collateral valuation process, which can result in loan applications taking as long as a month to turn into actual small business funding – hardly the kind of swift service a small business needs to pursue emerging opportunities, deliver goods and services to clients in a timely manner, or capitalize on market trends.
Private Lenders Offer Valuable Unsecured Business Loans for Bad Credit Customers
Seeing these holes in the market, and the absurdly difficult time that many small businesses have in obtaining business loans with bad credit, private lenders have stepped in to offer their services.
Unsecured business loans for bad credit customers, offered by private, non-bank lenders, address all of the shortcomings of traditional bank lending, and increase accessibility and availability of small business funding for those businesses with bad credit or a thin credit file.
Some facts about private lenders and unsecured business loans for bad credit:
This means that private lenders offering small business loans for bad credit customers are intimately familiar with the needs and challenges of small businesses.
This is usually only marginally more expensive than secured loans from banks, and well worth it to eliminate the collateral risk, at least in the eyes of many small business owners.
For example, many banks require credit scores in the 700+ range to qualify for their business loans, whereas private lenders may go as low as 600, 550, or even 500. That makes it easier to qualify for small business funding with bad credit at a private lender.
These are just some of the reasons why many small business owners seeking out bad credit business loans get funded more easily, quickly, and without difficulty at private lenders, offering unsecured business loans for bad credit customers.
This enables small business owners to get the funding they need, and start to build their credit file, history, and improve their score – all while meeting their obligations to their employees, suppliers, and customers.
Bad Credit Business Loans from BizFly Funding
If you own or operate a small business in the US, and are in need of bad credit business loans or other forms of small business funding, then consider BizFly Funding as your private lender of choice.
BizFly Funding works solely with small businesses, to offer them unsecured small business financing products like unsecured small business loans, bad credit business loans, merchant cash advances, business lines of credit, and more.
With qualification requirements that are far easier to meet than banks, no collateral requirements, competitive interest rates, a fast application and funding process, & outstanding service, BizFly Funding is making a name for itself as a leading US small business lender today.
Frequently Asked Questions about Bad Credit Business Loans
Every lender sets their own minimums in order to qualify for their loans and credit products.
Typically, banks offering small business loans require a credit score of 700 or higher, with many having even more stringent requirements.
This is in addition to revenue and time-in-business requirements, and collateral requirements if the loan is of the secured variety.
By contrast, private lenders typically have credit score requirements as low as 550 or even 500, with no collateral requirements, and more easily-met time-in-business and revenue requirements.
Each application and case is unique, however, so there’s no guarantee of approval, but your odds are far better with an unsecured business loan for bad credit via a private lender.
Most private lenders offering unsecured small business loans, including bad credit business loans, don’t typically require a down payment or deposit to obtain the loan.
This is more characteristic of certain kinds of government-backed small business loans through the small business administration (SBA) or their authorized agents, and not a concern when you choose a private, non-bank lender offering an unsecured loan.
Most businesses set up as an LLC – a limited liability company – are arranged as such to limit the impact that the business will have on the founder or owner’s personal finances.
However, blending personal finances with business – either through using personal collateral to back a secured loan, or via a personal guarantee on a loan or credit product, may ultimately impact your personal credit score if you default.
For example, if the business fails, and you cannot repay a loan which required a personal guarantee, then, depending on the jurisdiction and disposition of that debt, your personal credit score may be affected.
Small and medium-sized businesses in the US most often take out small business loans averaging around $350,000 in size.
This average accounts for all ages and market sectors, and newer small businesses often take out loans on the smaller end of that average, whereas larger, more well-established businesses may take out loans of $1 million or even more.
Most private non-bank lenders offer a range of loans and credit products, with upper maximums as high as $1 million for qualified applicants.
Upper maximums may be lower in the case of bad credit business loans, however, to account for the increased risk and lower qualification requirements.
Bad credit business loans are designed for companies that are already established, and have been in businesses for at least a few months.
This is not the same as a start-up loan, which provides initial funding or seed money to get the business started, obtain premises, hire initial employees, and so on.
Most private lenders who offer bad credit business loans are not specialists in start-up or venture capital funding, and vice versa.