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How you can get a small business loan if you have bad credit?
Having poor credit only makes getting a small business loan or business line of credit more difficult, however, not all loan providers use credit lines alone to consider a business owner or principle’s eligibility. In fact, there are many banks or financial institutions which will lend to a small businesses regardless of the owners credit rating if and when sales volume reflects a likelihood of repayment, and especially when those payments are set-up to be auto-debited (Electronic Benefits Transfer, EBT) from the businesses checking account; it’s as close of a guarantee of getting paid back as you can get.
Loans applied for through BUC Financial require the owner of the business to have, at minimum, a “500 FICO score,” which is generally considered to fall into the “bad” range. A business owner who has a 500 FICO score will usually have trouble qualifying for credit and wind up paying a bit more of interest than his or her good credit counterpart. FICO (the Fair, Isaac and Company) scores range from 300 to 850. As you can see, a 500-credit score falls below mid-range (less than half of that entire range), so loans which are given to those with a 500 FICO score or less are considered bad or poor credit financing.
Other options for business owners with bad credit are loan products which are given based on monthly auto recurring credit card charges where the business is basically selling their receivables or client/customer payments, rather then borrowing based on credit. The loans are usually referred to as merchant cash advances or “factoring” which allows a business to sell its future accounts receivables to meet immediate needs.
A business which chooses to factor its invoices will trade what is owned on future invoices to a loan company which will provide the money due up-front in exchange for purchasing those receivables at a discounted rate. Since credit is of little concern on those near-guaranteed receivables, bad credit is of little issue. This process allows business owners to effectively use the creditworthiness of their customers, rather than their own. Financial institutions which offer factoring will then look at the strength of the customer's credit, not the business owner.
For those with less than stellar credit, there are a variety of ways alternative lenders can use factors other than an owner’s credit score to determine eligibility. Annual revenue, profitability, business plans, collateral and outstanding invoices are just a few ways the right lender could collateralize a small business loan. There are many lenders which will work with businesses owners with credit scores in the area of 500 – 600 and some which will even consider lower. The best way to decide how to get a bad credit loan is to apply and review any and all available offers.
To learn about the process of acquiring a bad credit business loan visit our Frequently Asked Questions page. Ready to apply? Start your application now and get matched with up to $500,000 today!
