Find The Lowest Rates on Bad Credit Loans
Getting a business loan with bad credit isn’t as much of a headache as it’s made out to be.
We’ve been conditioned to believe that a poor credit score is an insurmountable obstacle for many of the things we want to accomplish in our lives, including qualifying for a business loan.
Having bad credit doesn’t eliminate your need for a business loan, and while your credit score certainly still carries weight, there are a handful of other qualifications lenders look for in your business.
In this blog, we’ll walk you through what you need to know about how credit is calculated, the best bad credit business loan options and how to apply for a business loan with bad credit.
What Do I Need to Know Before Applying for a Bad Credit Loan?
Before applying for any type of loan, you should be proactive and check both your personal and business credit scores.
Why should I check my credit report regularly?
Checking your credit report regularly allows you to see view your credit history yourself before you start applying with lenders. Under federal law, you are entitled to a free copy of your credit report every year from all three of the major credit reporting agencies – Experian, Equifax and Transunion. Because it’s free, you should be checking your credit report at least once every 12 months.
If you’re working to rebuild your credit, checking your credit score periodically can help you monitor your progress. Use your credit report to review your payment histories and see what you still owe on certain lines. Doing so will allow you to plan accordingly and set realistic goals for yourself.
Another good reason to check your credit score is to search for any information that has been misreported. Inaccuracies on your credit report can be the result of an error made by either the credit agency or ourselves; more often that not it’s a mistake we may have made.
An example of a mistake that might affect you credit score is inconsistency. If you use the name “Michael” when applying for a credit card, but the name “Mike” when applying for a car loan, this may cause one of those accounts to be absent from your credit report. This can also happen with other information like your social security number, birthdate and address. To avoid mistakes like this from happening, be consistent with the information you provide to lenders and be sure not to skip any obligatory fields.
What’s the difference between a hard credit inquiry and a soft credit inquiry?
When checking your credit report, there are two types of inquiries: hard inquiries and soft inquiries.
A hard inquiry occurs when a potential lender or other financial institution runs your credit report to make a lending decision on your business. You will typically have to authorize a hard credit inquiry when you are applying for a mortgage, loan or credit card.
Hard inquiries may affect your scores by a few points but they are unlikely to play a factor in whether your business is approved for a loan or not.
A soft inquiry occurs when an individual or company pulls your credit report to obtain a brief background on you or your business. Soft inquiries don’t require your permission and are pulled for a variety of reasons. A creditor may run a soft inquiry on you to see if your prequalify for special offers. Your employer may even run a soft pull before deciding to hire you.
Unlike hard inquiries, soft inquiries do not impact your credit scores and are only visible to you when viewing your own reports.
What is bad credit in the eyes of lenders?
Beyond understanding the benefits of knowing your credit scores, it’s also important to know how FICO scores are calculated and how lenders interpret them.
When a lender or creditor runs your business’ credit, they are looking to see which tier your business falls under. This helps them get a better idea of the type of applicant you are and what kind of rates and terms they usually offer applicants who were similar to you.
FICO uses five categories to help evaluate an applicant’s credit score:
- Excellent: 750-850
- While lenders might deny an applicant for other reasons, those with excellent credit are rarely denied.
- Good: 700-749
- With a credit score falling in this range, you are more likely to be approved for a loan and may even have options to compare between.
- Fair: 650-699
- Fair credit gives you a solid chance of being approved, but you probably won’t have the luxury of weighing your options.
- Poor: 550-649
- Consumers with poor credit may experience difficulty getting approved for credit and may also experience higher costs.
- Very Poor: 300-549
- A business with a very poor credit score may be rejected when applying for a loan and might even have to put down a deposit for utilities.
How is your business credit score calculated?
Your credit score is generated based on the information found inside your credit report.
While the specifics remain a secret amongst the major credit bureaus, here is what we do know:
- Your payment history holds the most weight among the various criteria at 35%
- The second strongest influence is amounts owed at 30%
- Account history carries 15%
- New credit and types of credit used each hold 10% value
The biggest factor, payment history, is simply a record of whether you’ve managed to make your payments on time. Amounts owed is a bit more complicated as it calculates what percentage of your total available credit is being used, or “utilization ratio.” The less credit you have available, the bigger hit it will have on your score.
Account history is determined using the average age of your accounts as well as the last time they were used. Creditors like to see that you’ve been able to maintain several active accounts and continue to use them.
The smallest two categories are how often you are opening new accounts and what type of accounts you are opening. Opening multiple new accounts at once will hurt your credit score, while showing you can manage different types of credit, like a mortgage, car loan and credit card, show responsibility to potential lenders.
Who are the three major credit bureaus?
Equifax, Experian, and TransUnion are the three national credit bureaus. All three of these companies use their own system of assessing credit but only Equifax and Experian provide both a personal and business credit score.
While each creditor offers a free personal report, the one you’ll need to properly examine your business may require a one-time payment.
Here is what you can expect to see in those reports and how they compare against each other.
Why do businesses with bad credit get rejected by lenders?
Credit scores are considered to be a measure of a company’s creditworthiness. If a lender determines from your credit report that you have been inconsistent with your payments in the past, have too many open accounts or have experienced a previous bankruptcy, they question your company’s ability to repay its loan.
Lenders may also reject new businesses who have yet to create much credit history. If your business is still in its first year of operation or has yet to establish many credit accounts, your best option may be a secured business loan or business credit card.
Best Bad Credit Business Loan Options
There are still plenty of loan options available to your business even if you have bad credit, but finding the one that makes the most sense for your current situation can be difficult.
We’ve outlined the best loan type for these scenarios…
Secured business loans and lines of credit
When a business loan is secured, it means you are offering either collateral or a personal guarantee to your lender. Assets used as collateral can be liquidated as a way to compensate for the lender’s loss if a business unfortunately defaults on their loan.
Because secured loans help minimize risk for the lender, they may increase your likeliness of being approved. Secured loans are offered by most lenders and can be short or long-term loans.
Short-term business loans with alternative lenders
Alternative lenders offer a different approach to bad credit loans than traditional lenders by using other factors than just your credit score to determine what you qualify for. Short-term loans are an immediate solution to a short-term need without requiring you and your business to pay years of unwanted interest.
Short-term loans are a multi-faceted funding option that can serve your business in a handful of ways. Handling your short-term loan responsibly can also improve your credit score. This may improve your chances of receiving better terms or rates the next time your business needs funding.
Use short-term funding to:
- Bring on additional staff
- Cover a temporary dip in cash flow
- Replace or repair important business equipment
- Purchase additional inventory in preparation for your busy season
Some businesses rely heavily on their customers remaining punctual with their payments. When they aren’t, and late or missed payments pile up, it can cause a handful of cash flow issues for your business.
During the time it takes your customers to pay their outstanding balances, you may find yourself stretched too thin to continue operating normally. This might mean you don’t have the appropriate funds to replenish stock, pursue growth opportunities or even afford payroll.
If your business has unpaid customer invoices, invoice financing can help your business continue functioning normally as you await your customer’s payments. Invoice financing lenders fund your business the amount it’s owed in outstanding invoices so your company can continue to function normally.
If your business has bad credit, invoice financing is a great option because they generally do not require a credit check and use your customers’ outstanding invoices as collateral for the funding.
When your business receives the payments it’s owed from its clients, you’ll repay your lender the amount you were funded as well as a fee calculated by how long it took for the funding to be repaid.
Unsecured business loans
If your company is highly qualified, you may get approved for an unsecured business loan even if your credit score is below average. Unlike secured loans, unsecured loans will not require you to pledge any personal assets to be used as collateral.
This type of funding provides businesses who may not own many assets an alternate way to get funding. Unsecured loans can be both long and short-term and are generally offered through alternative lenders.
How Can I Apply for a Bad Credit Business Loan Through Fast Capital 360?
Applying for a bad credit business loan through Fast Capital 360 is just like applying for a traditional business loan. Here are the 3 simple steps you need to follow:
Decide what type of loan you are looking for
Deciding on the type of funding that makes sense for your business depends on the following circumstances:
- How fast you need it
- How much funding you’ll need
- What you plan to use the funds for
Weigh your options
Finding the right lender for your business is important, but even more so when your credit score is working against you.
At Fast Capital 360, we find the best bad credit business loan options available to your business for you.
Most lenders today offer programs that cater to businesses with lower credit scores to help them overcome their financial history and continue to grow their business.
Fill out an application
Fast Capital 360 offers a quick and simple application that only requires you to answer a few basic questions about your business.
After you’ve completed your application, you’ll be asked to provide your four most recent bank statements as proof of income and you won’t have to wait around for weeks to find out if you were approved or not. Most of our applicants receive a decision in as little as 60 minutes.
Want to Speak With an Expert?
Bad credit is no longer the obstacle in your search for a business loan. It’s finding the right funding option for your business in an oversaturated market that causes problems. Fast Capital 360 can help you find your best available options in a matter of hours. Some applicants even receive their funds as soon as the same business day.
Your credit score is a number used to determine your business’s creditworthiness. But at the end of the day, your credit score is just a number. There are lenders who value other aspects than just your credit score when determining the health of your business. Fast Capital 360 helps connect you with those lenders.