What are bad credit business loans?
Bad credit business loans are designed especially for businesses with a poor credit history. You’re unlikely to get the lowest interest rate with these loans because lenders think it’s risky to lend to you based on your business credit score.
Can I get a business loan with bad credit?
Yes, don’t panic. Even if you’ve already applied for a regular business loan and been rejected because of your business’s credit history, you still have options. Some lenders are more likely than others to offer loans or business accounts for those with poor credit.
What affects your credit score?
Each lender has its own criteria on what makes a “good” credit score. Factors that can adversely affect your credit score include:
late or missed payments
existing debt
County Court Judgments (CCJs) or bankruptcy
making multiple applications in a short space of time
Your business credit score is generated by a Credit Reference Agency (CRA). The score indicates how reliable your business has been with borrowing in the past. Lenders use this information to decide if your firm is eligible for a loan and set the terms if your application is successful. A higher credit score increases your chance of being offered a cheaper loan.
Here’s why your credit score matters.
Are there alternatives to business loans for bad credit?
You could consider a business credit card if you need to borrow a small amount, but remember that you will pay interest on what you spend.
An agreed overdraft is another alternative and could help cover your bills and expenses without paying too much interest.
Other avenues might involve using crowdfunding platforms or applying for a small business grant.
Finding bad credit small business loans
Poor credit isn’t always an issue for small business loans, and you don’t need a significant turnover to get access to them.
You need to meet the lender’s criteria, which are stricter for those with bad credit. For example, a lender might only lend to businesses with fewer than 50 employees or an annual turnover of over £150,000.
You also need to supply up-to-date accounts. The more proof you can provide of your business’ finances, the better chance you have of getting a lower rate.
Compare small business loans.
How can I find business loans for sole traders with bad credit?
Your personal credit history plays a crucial role in getting business finance as a sole trader, so you must vet this before applying for credit. Make sure that you:
Stay on top of any credit card repayments and loan agreements
Don’t keep maxing out your credit card. If you do this often, it can look like you’re struggling to handle your finances
Address any areas on your credit score that might be contributing to a negative rating
Again, avoid applying for loans where you don’t meet the eligibility criteria. Repeated applications will harm your credit rating.
Short-term vs long-term bad credit business loans
The big difference between long-term and short-term loans is the repayment length. Short-term business loans charge higher interest rates over a shorter payment term, so monthly repayments are higher, but you pay back less interest overall. The opposite is true with long-term loans: monthly repayments are lower, but you pay more in the end because the loan lasts longer.
Short-term loans are good if you need cash straight away – some lenders transfer the money to your account within 24 hours. Long-term loans are better for investments.
What about a secured business loan with bad credit?
A secured business loan is a way of using your business assets to borrow money for your company. Because the loan is secured against your company’s property and effects, there’s less risk for the lender, and they’re more likely to accept you.
With a secured loan, you might be able to borrow more, get a longer loan term and still pay less over the loan duration. But don't take them on likely, remember there are risks too.
