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?
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 companiesDo 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. 5. Crowdfunding 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!