Accessing funding with bad credit may seem like an impossible battle, but it can be achievable with proper preparation, planning, and the right lender.
A poor credit score is attributed to many factors, the most prominent of which is failing to make payments on time. Mismanaging your credit will decrease your credit score, which is an essential indicator of how reliable you are at borrowing and paying money back.
Many businesses face financial hurdles, especially when unforeseen circumstances arise. Getting business loans for poor credit can help you improve your credit score, but they will have downsides:
- You might only access small loan amounts.
- Bad credit business loan interest rates are much higher.
- You won’t have an abundance of options.
Before we begin this article, it’s crucial to understand that poor credit means higher risk to lenders, so applying for bad credit business loans will not be easy. It would be best if you first start by improving your credit score.
Ways to improve a bad credit score
- Pay off old debt.
- Lower your credit utilisation.
- Avoid applying to multiple lenders at once.
- Analyse your credit report for any errors.
- Manage your new debt responsibly.
How to get a bad credit business loan
To give yourself the best chance of getting approved for a loan, you should take the following steps:
Prepare and plan
Diving into the application process without a plan will set you back. Small mistakes or discrepancies will lead to rejection, so it’s crucial to review and update your business plan before you apply for low credit score loans.
Although a credit score is important to most lenders, your professional experience, commitment to your business, collateral, and industry outlook are important factors too. Be sure to highlight these factors in your updated business plan. Don’t forget to emphasise how the loan will be used and how you’ll pay it back.
Understand your financial situation
If you’re set on applying for a business loan with bad credit, you should carefully review your finances. Do you really need the loan? If your answer is yes, how much can you realistically afford to borrow and repay?
Review your credit report
Reviewing your credit report is a smart way to understand how lenders perceive your application and risk level. It will also highlight how you can improve different factors. You can review your credit score for free with Experian.
What type of business loan will you need?
There are different types of bad credit business finance, so you’ll need to apply for one that suits your needs:
Personal loan: also known as an unsecured loan, this form of finance allows you to take out a loan at a fixed interest rate over a specific period of time. If you don’t have valuable assets to secure your loan against, then this loan might be more suitable. However, expect to pay higher interest rates if you have bad credit.
Secured loan: if you have assets (like property or cars), this loan is guaranteed against these valuable assets. If you fail to make your payments on time, the lender will repossess your valuable assets.
Guarantor loan: this type of bad credit business loan requires a relative or friend to repay the loan if you can’t. While you may access higher loan amounts, you risk shifting your debt onto someone else.
Compare lenders
Finding a lender that matches your needs and repayment abilities will boost your chance of getting approved for a loan. If the lenders we mention below don’t work for you, you can always use a loan eligibility checker to better understand who will accept your application.
Where to find small business loans for bad credit in the UK
Here are six credible lenders that provide bad credit business loans in the United Kingdom:
Capify
Capify offers a merchant cash advance loan, which you can repay using a percentage of your sales. They are specifically designed for small businesses, and obtaining one with a poor credit score is possible. Capify assesses your application holistically, meaning your credit score is not the sole reason for approval. Other factors they consider are your business performance, trading length, and monthly revenues.
These small business loans range between £5,000 - £500,000 and require a turnover of at least £10,000 per month and at least 12 months of trading.
Little Loans
Little Loans provides short-term small loans to companies with bad credit, ranging from £100 - £10,000. The repayment terms vary between 3 – 60 months. It has a high-interest rate of 49.9% APR, but getting a quick loan for bad credit is possible.
Little Loans works with specialist lenders who are prepared to lend capital to businesses with a poor credit history. These loans are suitable for business owners who need to cover unexpected expenses quickly.
365 Business Finance
365 Business Finance understands that a perfect credit score is not always achievable. This is an excellent option for business owners who don’t have collateral to secure their loan against and don’t want a hard credit check. Their merchant cash advance ranges between £10,000 - £300,000, even with a bad credit history or no credit history.
Because the loan is a merchant cash advance, there are no fixed monthly payments or interest rates. They require that your business has a trading history of at least 12 months and a turnover of at least £5,000 a month.
Aspire Business Loans
Aspire provides different loans for bad credit, ranging from £5,000 - £300,000. Their loan repayment terms range from 1 to 5 years but require a bank account history of at least one year.
Interest rates will vary depending on each business, but they provide various loans, including bad credit business loans and start-up business loans.
CashFloat
CashFloat provides bad credit business funding with flexible repayment terms. Their products don’t require a guarantor or collateral, and you can apply for a quick loan of up to £1,500 with a repayment period of 3 – 9 months.
Once you apply, you will receive a representative APR, a monthly repayment plan, and a total repayable amount. However, it’s important to note that their interest rates are significant, ranging from 295.58% APR – 1294% APR.
JPM Capital
It’s possible to borrow £5,000 - £50,000 from JPM Capital. With an interest rate of 2 – 2.5% on unsecured loans, JPM Capital indicates that they do assume more risk than most lenders, but this is built into their pricing structure.
They also require a personal guarantee and a business owner should have no active Country Court Judgements.
FAQs
Can you get a business loan with bad credit?
You certainly can. But loans for bad credit can be challenging to get. They have higher interest rates, shorter repayment periods, and will require meticulous preparation and planning.
How fast can I get a loan for bad credit?
Quick loans for bad credit are possible, but this will depend on the lender and how detailed your application is. Some lenders can release funds in 24 hours, while other lenders may only release funds in a few weeks.
What can I do if my business has bad credit?
You’ll need to improve your credit score. Here are some ways to do that:
- Start making regular payments on time
- Keep your credit utilisation to a minimum – preferably below 30%
- Check your credit report for any errors
- Get a credit builder card
What is the easiest loan to get?
The easiest way to get a loan is by using an online lender that doesn’t require collateral or hard credit checks. You can also apply for a merchant cash advance or crowdfund your loan.
Can I get a start-up business loan for bad credit?
Bad credit start-up business loans are not easy to get. Most lenders perceive start-ups as risky, and having a bad credit history will further decrease your chances of approval.
Guaranteed start-up business loans for bad credit are challenging to find, so consider a small business grant instead.
The bottom line: loans for bad credit
The most important thing to consider regarding bad credit business loans is your ability to manage repayments. As we’ve emphasised, loans for bad credit have significantly higher interest rates, so you must be prepared for this.
However, managing a bad credit loan will improve your credit score, helping you get more favourable finance options in the future.
Once you’ve improved your credit rating, read our guide on other finance options to start, buy, or grow a business.
We hope your search for funding goes smoothly!
@Be_theBoss