……the answer might surprise you!

Bad credit and getting a business loan do not mix, because good money does not chase after bad. But there is always a way. Even with a bad credit score, you can still improve your chances of getting a business loan. 

Many newcomers and entrepreneurs find themselves in disastrous credit situations- either because of poor financial decisions, sudden business turbulence or sometimes simply as a result of over-leveraging themselves.

Having poor credit will make it more difficult to get a loan for your business, but it is not mission impossible

Here are some useful tips. 

  1. Be transparent 

If you have poor credit, make no attempt to conceal this from your bank. On the contrary, explain your situation to your banker. Banks often look at the behind the trends behind the numbers and may not decline your loan request simply because of a poor credit score.

2. Be ready to pay higher interest

The interest rate on your loan is based on the banker’s assessment of the risk in lending to you. A premium will be charged when the risk is judged to be higher

3. Be patient

Credit scores are used by banks to quickly evaluate someone’s creditworthiness. Having a poor credit score slows down the lending process because your business’s financial documents will have to be examined more closely and the loan will likely need additional approvals. Darryl Curtis, at Meadowvale Business Centre, BDC, explained in an article that “credit scores speed up the lending process. As a lender you can get back to the client more efficiently. Instead of four to five weeks, we can do it in a couple of days. But a bad rating makes it harder and might slow down the process.” 

4. Work to improve your credit score

You can take a number of steps to improve your credit. Entrepreneurs are advised  to avoid getting too many credit cards and using one credit card to pay debt on another. It is also important to build up your credit history steadily. 

Where to get a business loan with bad credit 

Banks and credit unions likely won’t approve you if you have bad credit. But these alternative sources may let you get a business loan with a spotty credit history:

  • Online lenders. Most online lenders require a minimum personal credit score between 500 and 650. But a few have no minimum credit score requirement, focusing on factors like your business’s cash flow instead. Online lenders offer easier approvals and faster funding than other business lending options, but they typically charge higher rates — even for those with good credit.
  • CDFIs. A community development financial institution, or CDFI, receives government funding to provide banking access to low-income or underserved communities. CDFIs are often banks and credit unions, but don’t have the same strict credit requirements for lending those financial institutions have. If eligible, you could get a competitive interest rate. Funding can be slower than online lenders, though.
  • Microlenders. If you have bad credit, you may be able to get a microloan for your business. These typically come from nonprofits. Because profit isn’t these organizations’ primary driver, they may be more willing to work with business owners with a thin credit history. The disadvantage a microloan is that the loan sizes are usually small. Just as the name implies.

According to Nerdwallet, Online lenders provide small-business loans for borrowers with bad credit. Rates may be higher than bank loans. They listed 5 Best Business Loans for Bad Credit. These are:

  • Fundbox – Line of credit: Fundbox offers a business line of credit to fill a cash-flow gap, and qualifying is easier than with other lenders. Interest rate is 15-78%. Depending on your creditworthiness and your business’s financials. Best for 500+ personal credit score
  • OnDeck – Line of creditInterest rate is 15-78%. Depending on your creditworthiness and your business’s financials. Credit scores must be 600+
  • OnDeck – Online term loan OnDeck offers a fast term loan for small-business owners with less-than-stellar credit who want to expand. Interest rate ranges from 9.00-99.00%
  • BlueVine – Line of credit Interest rate is 15-78%. Depending on your creditworthiness and your business’s financials. Credit scores must be 600+
  • BlueVine – Invoice factoring. Best for Businesses with unpaid customer invoices. Interest rate is from 15.00 – 68.00%

Sources:

Business Development Bank of Canada (BDC)

Nerdwallet

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