How to get a business loan with a bad credit rating

While you will have a bit more of a challenge on your hands, bad credit business loans today come in many shapes and sizes. Find out more about your options as a small business owner.

Caroline Ramsey Last updated on 20 January 2021.
How to get a business loan with a bad credit rating

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Securing funding for your business if you have a poor credit record isn’t as straightforward as it is for those with a healthy financial past. However, it is not impossible. In fact, with a growing number of alternative lenders in the marketplace, credit history is becoming less of a burden for small business owners.

Although the traditional high street banks will still quite often turn you away if you approach them for funding with bad credit, alternative lenders are far more likely to see things differently. Some lenders now even specialise in providing bad credit business loans.

Providing you do your research and choose the right option for your unique situation, there’s really no reason why you can’t find a business loan – regardless of your past financial woes.

» MORE: How can I increase my business credit score?

What factors affect business lenders' decisions?

When your company applies for funding, lenders will consider the credit history of both the business applying for the funding and the director or directors involved. Your business may be flourishing but if you, personally, have a chequered financial past, you aren’t likely to be inundated with business loan offers from traditional lenders.

Below, we look at the main issues that can lead to poor credit and difficulty in obtaining finance.

Business factors

Business CCJs: You may find that lenders will want to know how many County Court Judgments (CCJs) your business has received and with what frequency. CCJs are evidence that creditors have taken legal action against your business, indicating missed payments.

Winding-up orders: An application for a business loan will be affected if your business has been subject to a winding-up petition, regardless of whether it was rejected or not. A winding-up order or petition is submitted by creditors who want to seek repayment of debts by closing down your company.

General financial performance: The financial performance of a limited company is available for public viewing and most lenders will take a good look at the data available. Issues can arise if your business has limited cash or is making a loss.

Credit histories of others involved in the business: As well as the directors’ credit performance, the credit histories of others involved in the business might have a bearing on whether you can secure a business loan, particularly if they are an individual with significant control.

Personal factors

Past business failures: As the director of a business, your past record when it comes to running businesses will be examined by potential lenders. If you have left behind a string of failed companies, this won’t reflect too well on you.

Poor credit history: A poor credit history blights many people and is quite often simply the result of failing to pay back debt on time in the past.

IVAs: Individual Voluntary Arrangements (IVAs) are plans set up between creditors and an individual to allow them to repay an outstanding debt on terms that suit both parties. They tend to be a formal agreement and can help indebted individuals to repay the money they can afford to pay back over a comfortable period of time, but also usually involve the lender writing off some of the debt.

Debt management plans: These are similar to IVAs but the entire debt is repaid, including interest and charges.

Personal CCJs: If you have County Court Judgments against you as an individual, it shows potential lenders that creditors have taken legal action to collect the debt you owe in the past.

What options are available for bad credit business loans?

If you are feeling the burden of some of these issues outlined above, fear not, because the prospects of securing a business loan are not as bleak as you may think. Here, we look at the solutions, from guaranteed approval business loans, to invoice financing.

Bad credit business loan providers

There are a number of ways you can still obtain a business loan with a poor credit history or any of the other issues detailed above. Most of the alternative lenders who specialise in offering bad credit business loans under these circumstances will want some security against the loan, however.

Some smaller challenger banks are offering business loans on a deal-by-deal basis and might be more open minded about your situation. This route is worth considering if you feel you will be able to build your case for a business loan.

Peer-to-peer lending can be another useful option to consider when looking for guaranteed approval business loans and online services can help to match you with the best loan for your circumstances.

Other business finance options

Don’t forget that banks and other lenders will often look more favourably on small business loan applications from businesses with bad credit if the applicants are able to provide security in one form or another.

Whether your company is seeking a secured or an unsecured bad credit business loan, remember there are a lot of different business finance options available these days. Here are just a few:

Turnover loans: If your business has a strong turnover, you may be able to secure a business loan based solely on this. Bad credit scores are less of an obstacle to businesses that are operating with a high turnover.

Personal guarantee loans: If your business’s credit history or financial performance is in question, you can offer a personal guarantee to repay the loan if your business can’t.

Invoice financing: Invoice financing can free up cash trapped in unpaid invoices. It can be a great way to improve cash flow and access money for investment in growth. However, it comes at a cost, as you usually pay the provider a percentage of the invoice total plus a fee.

» COMPARE: Invoice financing for your business

Asset finance: You may be able to put up new assets as security against a business loan. If you are cash poor but need to invest in valuable machinery, this can be a useful option.

» COMPARE: Asset finance deals

While the door certainly isn’t shut to businesses with poor credit who are seeking finance, finding the appropriate solution is an extra challenge.

It’s vital to carefully research your options, from the traditional to the alternative, before deciding what kind of bad credit business finance to apply for.

About the author:

Caroline Ramsey is a content creator who specialises in personal finance. More than a decade of working in editorial teams, she offers highly tailored content covering a number of topics. Read more

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