When it comes to obtaining a bank loan, bad credit isn’t just a thorny issue: it’s an immovable obstacle. Because many small businesses have suffered due to COVID-19, qualifying through a bank can be even more difficult.
For reasons that have little to do with reducing risk and much to do with generating profit, over the last decade banks have severely tightened up their small business lending requirements.
They insist on exceptional business and personal credit scores (which is an even bigger problem for some small business owners, who don’t even know that they HAVE a business credit score in the first place!). Have you checked your credit report lately?
Fortunately, banks — and credit unions for that matter — certainly aren’t the only options.
There are several practical, affordable and strategic funding solutions available that don’t require good credit. In fact, even a discharged bankruptcy or an open tax lien typically aren’t deal-breakers.
Below, we highlight 7 types of bad credit business loans that you can apply for right now, and likely start using to cover expenses and investments. Even if your business suffered due to the coronavirus pandemic, you may still have valuable options on the table.
What Are Business Loans for Bad Credit?
Bad credit business loans are financing options that do not require a high FICO score for approval.
These are relatively new types of business loans compared to traditional funding options that have become available through fintech lenders, or alternative business financing companies
Do Business Loans for Bad Credit Come with Guaranteed Approval?
Business loans with low FICO scores do not offer guaranteed approval. However, they do come close, with over 90% of business owners who apply for loans accepted by National.
To increase your chances of getting approved as much as possible, be prepared to compensate for low FICO scores with solid annual gross sales and time in business.
Some financing options also require that you offer some form of collateral, although National has many unsecured business loans that do not require any assets to be leveraged.
7 Types of Business Loans for Bad Credit
- Small Business Loans
Working capital loans for small businesses are straightforward short or long-term funding options with fixed, regular payments (typically monthly). This type of funding is also unsecured, which means that you don’t have to pledge business and/or personal assets as collateral.Whatever your preferences may be, National can find the perfect small business loans for any borrower, regardless of credit score. When a business needs funding immediately to pay for an emergency expense, many borrowers with poor credit turn to alternative financing for fast and easy options.With looser requirements, flexible terms, and faster funding than loans provided by traditional lenders, small business loans make it easy to secure financing options with accommodating terms that help businesses from virtually every industry accomplish any specific goal, regardless of blemishes on credit scores and financial histories.Because PPP loan funding has been depleted, this may be the best option available for cash-strapped businesses looking to reach the next level after the pandemic.
- Business Line of Credit
Yet again, this isn’t technically a business loan — but many business owners leverage this option to cover unexpected costs and temporary shortfalls. There are several other benefits, like instant access to funding, only paying interest on the amount drawn, and the ability to draw funding again after paying it down.If you need immediate funding, and/or you constantly find yourself needing fast access to cash on-hand, then a business line of credit is the financing option for you. This kind of business loan (even though it’s technically a financing option) for poor credit is exactly what those who require capital to prepare for unexpected future expenses.Need to hire extra staff to take on an unprecedented amount of customers? Cool. You need extra materials to take advantage of a sudden opportunity? Not a problem.With lightning-fast access to funds, and incredibly flexible repayment terms, a business line of credit may be just what your business needs to grow. One of the most convenient and accommodating features of a business credit line is that you only pay for what you use.National will work with you to determine a line of credit amount, and then you can draw upon that line of credit as you need it.
- Equipment Financing
Equipment financing enables you to immediately purchase the equipment — such as machines, tools, technology, and more — that your business needs. Whether you want to improve efficiency, enhance competitive advantage, onboard more customers, or ultimately increase profitability, equipment financing can be quite helpful.
- Inventory Financing
Similar to equipment financing, inventory financing enables you to procure inventory — or if you’re a manufacturer, raw materials that are developed into finished goods — now instead of later. This type of funding is especially valuable to channel partners, resellers and franchisees that are contractually obligated to maintain minimum stock levels at all times.
- Accounts Receivable Financing
A business advance technically isn’t a loan. Rather, it’s an advance on pending accounts receivables. This not only ensures that you get paid now vs. 30, 60 or 90+ days in the future, but the lender takes on all risk if a customer fails to pay an invoice, or delays in paying an invoice.
- Merchant Cash Advance
Similar to a business advance, a merchant cash advance technically isn’t a loan. Rather, it’s an advance on future payment of credit or debit card sales. That’s why this option is typically suitable for B2C retail operations like restaurants, auto repair shops, and hardware stores.After the close of each business day, a small percentage of daily sales is automatically withdrawn and applied to the advance balance. Notably, this means that the total cost of borrowing doesn’t increase if it takes longer than anticipated to clear the balance.
- Doctor Loans & Healthcare Financing
National offers specialized loans for medical, dental and healthcare professionals of all kinds, with any credit score. With this kind of business loan, healthcare professionals can easily bridge gaps between slow healthcare payments, manage payroll, purchasing new medical equipment, expand or relocate, or hire staff – regardless of credit score.
Tips for Getting Bad Credit Business Loans in a Post COVID-19 Pandemic World
During the height of the pandemic, lending guidelines weren’t exactly open. Now that many businesses are back in full swing, though, you may have options on the table. Right now, many small businesses need financing more than ever to get the ball rolling, implement new procedures, and pursue new opportunities.
With a stronger financial profile, you’ll have more (and better) options available.
1. Stay Up-to-Date on Credit Card and Other Bills
The more lenders can see that you’re paying down existing bills, the better. This demonstrates financial responsibility on your part, but also shows that you’re generating the revenue to take care of obligations. As your business gets up and running, be sure to cover all these expenses.
2. Deposit All Funds Into Your Bank Account (Including Cash & Credit Card Sales)
Credit score isn’t a game-changing factor when it comes to qualifying for a business loan, but annual sales are. Your word about total sales is only as good as the amount showing in your account.
To give your business the best odds, be sure to put all of your monies into your checking account.
3. Keep Sales and Revenue Consistent
Now more than ever, consistency can go a long way. This not only shows that your business is profitable, but that it can endure the tough times.
By showing consistency, you’re proving that you’ll be able to pay off any future financial obligations, like a bad credit business loan.
4. Pay Attention to Your Finances
Be sure to monitor everything going on in your business from a financial perspective. This is important for the longevity of your business as you grow.
Be sure to track sales and expenses. Additionally, analyze expenses to see which expenses are driving revenue, and which might not be.
Financial best practices aren’t significantly different in the post-pandemic world. However, keeping these factors top of mind will help you land the best deal possible.
Your Lender Options: Customize Your Loan for Your Credit Score
According to some stats, fewer than one-third of businesses looking for funding through a traditional banking method were actually approved. Fortunately, that’s far from being your only option.
Depending on your needs and goals, you can find financing options through several different types of lenders. If you have bad credit, though, your business loan options might be limited to fintech lenders.
1. Traditional Banking
It’s unlikely, but there’s a chance you’ll still receive a loan from the bank with a low FICO score.
However, be sure not to let your bank application hold up your search for financing. If you’re planning to use cash to pursue a new opportunity, then chances are your opportunity may pass by the time you’re approved.
Be sure to keep this time frame top of mind on your search for financing.
2. Invoice Financing
If your company deals with customer invoices, and you have several that are currently unpaid, you can use them to apply for invoice financing.
This can help you get the cash flow you need to get your business moving in a timely manner. In essence, you’re using unpaid invoices to take on new customers.
Again, your time-sensitive opportunity can’t wait for bank approval.
3. Alternative Lending
Most online lenders will give you an opportunity, even if your credit is a bit of an eyesore. And, as with anything else, the higher your credit score, the better the terms of the loan will be.
Alternative lenders are a great option if you’ve been turned away by the bank, or if you need cash in a hurry to seize a moment.
4. Credit Cards/Line of Credit
If you’re just starting out, applying for a company credit card or a business line of credit is often a smart way to get the cash you need for one-time purchases.
Pay on an as-needed basis, but remember: don’t borrow more than what you need. Overdrawing a loan and having to pay back interest on money you didn’t even use can derail even the most detailed business plans.
Need some extra cash and have a great rapport with your customers? Then using a grass-roots movement to ask for contributions might be a fantastic option to raise money.
As always, help from family and friends is a bonus. If you’re going to pursue this option though, make sure to be open and honest about your needs and your goals. Social media can be a wonderful tool in this endeavor.
Be sure to remember that this might give you some extra cash, but it may not be enough. If you need a substantial amount of cash to accomplish lofty goals, then this probably isn’t the best option.
[3 Steps] How to Get a Business Loan with Bad Credit
While it may seem like a difficult process, getting funding isn’t actually quite complicated. In fact, you can apply and learn your options for bad credit business loans through a simple, easy process.
- Apply: Complete a 60-second online application. Finish your application by connecting your bank statements through our online portal.
- Connect: Hear your bad credit business loan options explained by a knowledgeable Business Financing Advisor. Ask any questions you might have about the process, and learn what you need to know.
- Get Funded: Select an option you’re approved for and get funded in as little as a few hours. Then, get back to growing your business!
National makes it easy to all companies, from virtually all industries – regardless of credit score.
Because of our streamlined technology and process, you won’t have to submit stacks of documents. Instead, we get all the information we need from your application, saving you valuable time, money and energy while expediting the process.
Bad Credit Loan Requirements
Our approval process does NOT revolve around credit score and extensive financial histories. All you need is $120,000 in annual gross sales and over 6 months in business.
Instead of following rigid and unreasonable standards, we pride ourselves on our ability to provide business loans that accommodate to the unique needs of any business owner, regardless of credit.
In fact, many of the most successful business owners with low credit scores came to National for help after getting rejected multiple times by banks. Today, these businesses are among the largest contributors to National’s 90% approval rate.
Businesses with excellent sales and financial histories can have bad credit scores too. There are variables that may not even be your fault – that’s no reason to deny businesses the funds they need to grow.
That’s why we secure financing for low-FICO borrowers with the lowest rates in our exclusive marketplace of over 75+ lenders – in as little as 24 hours.
Loan Rates, Terms & Amounts
Rates: Banks and traditional lenders secure financing with unreasonably high rates for business owners with bad credit. This is because the low FICO score causes the banks to consider them “untrustworthy”, due to these arbitrary standards.
However, there’s more to it than that. Through our 75+ lender marketplace, we can find competitive rates, terms and amounts. Contact a Business Finance Advisor by calling (877) 482-3008 to ask about the lowest interest rate business loans available.
Amounts: $10k-$5 Million in funds can be secured through our streamlined and expedited business financing programs.
Terms: 6 Months-10 Year terms are offered to borrowers of all credit profiles for both long and short-term business funding solutions.
Why Borrowers Avoid Traditional Lenders
If you’re wondering how to get a small business loan with a low FICO score, you should avoid the traditional loan process entirely.
Typically, the financing offers you’ll receive come with much more difficult qualification requirements, and a much longer and more complex time to access financing.
And perhaps most importantly, the lower your credit score, the worse terms you’ll receive through traditional lenders. That includes higher interest rates, shorter term lengths and lower amounts.
Do NOT Apply for a Business Loan If:
Interest Rates are Too High: Don’t ever settle for a business loan with interest rates that don’t perfectly match the needs of your business.
Term Length Isn’t What You Wanted: Ensure your ability to repay borrowed capital with a term length and repayment schedule that best matches your business model.
Loan Amount Isn’t Large Enough: How much do you need to accomplish your specific business goal?
Getting the amount of capital needed with poor business credit can be incredibly difficult through the channels.
However, there are many financing options that offer large amounts regardless of credit score.
Qualification Standards are Too Strict: Don’t let a lender make you think that just because you have a poor credit profile, you’ll accept terms that hurt more than help.
How to Get High Risk Business Loans with Bad Credit
Access to a solid source of capital as needed is crucial for any business to grow and expand.
Every business is unique, and so the best type of business loan that would benefit a company most varies depending on the needs and goals of each individual business.
However, for business owners with low FICO scores, the financing options that perfectly match their needs are often considered “high risk business loans” by banks and traditional lenders, and denied their chance for success as a result.
The Good News:
Alternative business lending offers new and exciting opportunities for businesses to easily secure their business loan of choice, without the traditional emphasis on risk.
Read on to find out how to secure high risk business loans, regardless of credit score and extensive financial history.
5 Steps to Apply for High-Risk Business Loans with Bad Credit
Step 1: Determine How Much Money You Really Need
Business owners often make the mistake of seeking financing options with the longest terms, and the largest loan amounts, such as SBA loans.
While this is ideal for some, for others, these options can wind up hurting more than helping.
If you are seeking funding for small, short term goals such as hiring staff, or purchasing equipment, large business loans may not be the best option for your business after all.
Determine how much money you really need, and consider alternative options with less risk that don’t depend on credit score to avoid paying off unnecessary amounts of capital well into the future.
Step 2: Create a Solid Business Plan
Prepare a well-thought-out business plan that clearly details how you plan on using your borrowed capital. Take your time exploring your financing options, and plan a repayment method that best fits your business model.
Proper planning, mapped expenses and repayment strategies won’t only make it easier on your business financials looking ahead. A detailed strategy will also make lenders feel comfortable with giving you cash by showing them exactly how you plan to use borrowed funds.
Step 3: Consider Your Ability to Leverage Assets
Traditional lenders have been known to scheme their clients into leveraging their personal and business property, including their cars, home, and their businesses themselves as collateral for what they consider to be “high-risk” situations.
If you are in a position where you can’t put up personal and business assets, consider alternative financing options that do not require collateral. These include business lines of credit, merchant cash advances, and other unsecured options.
Step 4: Pitch Your Idea
Every business owner knows the importance of first impressions. Lenders want to know that their capital is going to be used to achieve positive results.
Pitch your goals in a way that excites lenders about how you plan to use their capital to improve your company.
Demonstrating passion for your business with a pitch that provides clear insight as to how you’re going to use your lender’s capital—and how you plan on paying it back—is extremely important when applying for high risk business loans.
Step 5: Seek Guidance From an Expert Business Financing Advisor
As a business owner, you know your company better than anyone else. While you may know what kind of business financing you’re looking for, a little help can go a long way.
Consult with a business financing advisor like those at National to get expert insight as to which type of business loans would benefit your business most. Get a second opinion, and save yourself time, money and stress along the way.
Why Choose National for High Risk Business Loans?
Because National knows that the same business financing options labeled as “high risk” by banks are often the types of loans that help businesses most!
Many of the businesses that National works with have been denied by banks and traditional lenders that claim the financing options they seek are high risk business loans.
Alternative Financing vs. Bank Loans
Traditional lenders have been and will always be an inconvenient and all-around awful means of securing financing for business owners with poor credit. Banks have only ever had one thing on their mind when approving their clients for funding: the size of their credit scores.
According to banks, business owners with bad credit haven’t proved themselves trustworthy enough to borrow any capital.
Strange and arbitrary qualification standards regarding business credit score, financial history, and even the terms of their loans are already set far in advance, and refuse to accommodate to any business owners that do not meet those standards.
Does something about this sound horribly wrong to you? That’s because there is. Alternative lenders like National know that businesses are never defined only by their credit score.
This is especially true for businesses that have not been in business for long, as well as those that have low credit scores due to seasonal drops in revenue.
There are many contributing factors that play into a business’ credit score, and more times than not, businesses with poor credit are not themselves entirely responsible for their scores in the first place.
When Banks Say No, We Say YES!
National believes that businesses aren’t defined by their credit scores. That’s why they approve over 90% of all applicants, compared to about 15 percent at big banks! Instead of looking purely at FICO and financial history, we approve the businesses we serve through a much wider perspective.
Unlike banks and other lenders, National’s mission is to innovate the way entrepreneurs grow by making the entire funding process faster and easier for small business owners.
National focuses on the bigger picture when evaluating the businesses of their clients as a whole, and establishes trust based on the promise of their business model.
Get a Business Loan with a Low Credit Score Today
Download a Free eBook on the 10 Pitfalls You Must Avoid in Business Financing
If you’re starting to consider Alternative Financing, this eBook is a must read. Business funding doesn’t have to be risky and complex. Learn how to avoid the same financing traps most business owners fall into with tips that will help you get the best deal: