Bad credit has become a common reason for the rejection of small business loan applications. Lenders consider poor credit borrowers a risky investment because of their high probability of loan default. However, even with bad credit, there are financing options available for poor credit borrowers.
When you’re struggling with bad credit, you might think it’s nearly impractical to get funding for your small business. Luckily, that’s not always the case. The alternative lenders are taking into account different factors other than credit scores to determine the creditworthiness of a borrower. While most lenders will require your credit history, you will find that stellar credit ratings are not always essential to qualify for business loans.
With bad credit, you might not be able to get affordable financing options with low cost and favorable terms; however, you will find bad credit small business loans for your small business.
Bad Credit Business Loan: The Adjustment
While you’ll be able to secure business loans with bad credit, but because of the high risk involved, you’re more likely to pay a higher annual percentage rate (APR) to cover the extra risk.
Lenders charge higher interest rates to bad credit borrowers to compensate for a higher expected default rate. Just as they’re providing capital to help you grow your business, there are also trying to grow their business, which means maximizing their ROI. Here are our top five picks for business loans for bad credit.
Top Five Picks for Bad Credit Business Loans
Microlenders are non-profit institutions that provide financial assistance to disadvantaged communities and deprived businesses. They typically provide loans of $50,000 or less to startups and new businesses. Since microlenders are mission-focused or mission-based lenders, most of them also provide business counseling and training with educational events.
Every microlender has its own set of rules and requirements. The most popular microlenders are Accion, LiftFund, Opportunity fund, Justine Petersen and Grameen America. Most of these lenders want to know about your business idea and uniqueness. They typically use a person-first approach instead of automated approval for funding. Just know the microlenders offer smaller loan amounts with the loan process.
Lendio is a marketplace of lenders that match you with financing options from their nationwide network of esteemed lenders. Lendio does not originate loans directly, instead, it matches you with the best possible loan options you can qualify for, and so you can compare rates and terms to secure the best business loans for your situation. The best this is that Lendio is working with industry-leading lenders (including PayPal, Bank of America, Fundation, and OnDeck, to name a few), so you won’t miss an opportunity to get a business loan from them.
If you’re looking for alternative financing and tangled about where to start your, Lendio is the first stop for your business especially when you have poor credit.
BlueVine is an online lending service for B2B businesses that have long invoice cycles and are struggling with unpredictable cash flow due to slow payouts from customers. If your business is struggling with inconsistent cash flow and needs quick cash to fill the gaps, BlueVine is your best choice. BlueVine provides advances up to 85% of your outstanding receivables up to $100,000 to work with instead of waiting for invoice payments to come through. In order to qualify for BlueVine invoice factoring, you will need to have three months of time on business, 530 personal credit score, and annual business revenue of $10,000 per month.
Credibly is the best funding source for startups that provides small business loans and merchant cash advances. The best thing about Credibly is that it has its own set of rules and criteria to qualify borrowers, and there’s no minimum credit score requirement. In order to qualify, you must be in business for 6 months with a $15,000 annual revenue monthly and 500 personal credit score. Credibly loans are not available in every state, so before you apply to them make sure it serves in your state. No minimum credit score requirement and fast and easy loan process make it a worthwhile alternative.
- Business Credit Cards
Another popular form of getting bad credit small business loans is via business credit cards. Although not a loan, business credit cards can help you find the funding you need without the hassle. Different cards have varied requirements, so you may be able to find one that will work with your current credit situation.
If you’re unable to qualify for business credit cards, look for secured credit cards. For a secured credit card, you need to deposit or provide collateral (as cash) upfront. With business credit cards, you will not only get funding for your business but can also build your credit.
Why Credit Score Matters To Lenders?
Lenders are in the business of making money and they don’t just lend money as a charitable act—they want to get paid back. With that said, they consider credit score as the main determinant of your creditworthiness. If you have a history of timely payments, you’re likely to have a good credit score. On the contrary, if your track record includes late or missed payments or defaults, you’ll likely have bad credit and lenders will be reluctant to approve you for business loans. Your credit score is the main factor that lenders use to determine your repayment ability and whether they should lend you or not in the first place.
How Credit Score Affects Financing?
Your credit score also affects the chances of financing. Put simply, you have more chances of approval with a high credit score and vice versa. Even if you’re approved for business loans, your credit score can affect your loan amounts and interest rates. A higher credit score will get you higher loan amounts with lower interest rates, and more favorable repayment terms. With a bad credit score, you will get a lower loan amount with lower rates, and shorter repayment terms.
What types of business loans are best for bad credit?
If you have a bad credit score, financing options like invoice financing, equipment financing, and merchant cash advances are your best options. Qualifying for these financial products is easy because it involves collateral making it easier to qualify for than traditional loans. In these loan options, the equipment, your invoices and the percentage of your credit card revenue serve as collateral. You can also qualify for some short-term loans and lines of credit as well.
How Merchant Advisors Offers Business Loans for Bad Credit?
At Merchant Advisors, we believe you can achieve great things with the right financial support. Which is why we offer guaranteed bad credit business loans with no hidden fees or costs. When evaluating your eligibility for small business loans, we take a holistic view of your business by considering an array of factors such as personal credit, tax returns, financial statements, and other relevant documents – not just your credit score. Irrespective of bad credit, our business loans for bad credit feature easy paperwork, quick turnarounds, and flexible payments. Contact Merchant Advisors to explore your bad credit small business loan options today.