Are you dreaming of starting your new business despite having bad credit?
Nearly a third of Americans have bad or subprime credit scores.
Your credit score can impact credit card spending limits, your ability to get a loan, and financing terms. Many people assume, therefore, that bad credit prohibits them from the financial assistance they may need.
This is particularly true for entrepreneurs who have a vision but lack the credit they believe they need to obtain a loan.
However, bad credit loans do exist, and it is possible to request one today.
In this post, we discuss how these loans work and what you can do to acquire one.
Read on for insight!
What is a Bad Credit Business Loan?
First, let’s define a business loan itself. A business loan is a specified amount of money an entrepreneur requests from a lender in order to finance business costs.
Many entrepreneurs lack the working capital necessary to get a company up and running. Thus, most people take out a business loan before they’ve started the business.
However, it is possible to request a loan after your business has been launched. These loans can give owners the capital they need to hire new employees, expand a product line, or invest in marketing.
Much like an automobile or home loan, a business loan will be subject to its own interest rates and terms, depending on the lender.
Some loans will require borrowers to provide collateral to back the loan itself. Others may require a personal guarantee, which may keep your credit score and personal assets in mind.
Every business loan will be different, depending on your credit score, ability to provide collateral or demonstrate assets, and the lender itself.
A bad credit business loan is one specifically designed for individuals with poor or subprime credit.
This means that they have a FICO credit score at or below 629. Most banks will reject business loan applications from potential borrowers with subprime FICO credit scores.
However, other lenders won’t. There are lenders that offer bad credit business loans to individuals with a minimum credit score of 500, for example.
Others don’t even require a credit check when processing applications.
How to Get a Business Loan with Bad Credit
Now that we’ve discussed what bad credit business loans are, let’s look into how to obtain one.
1. Identify Your Financial Needs
It’s essential to know the nature of the financial assistance you require before you apply for a bad credit business loan. Identifying your financial needs ensures that you secure a business loan on the best terms possible.
If your business is currently up and running, identify the nature of the funds you need. Are you seeking to consolidate debt? Do you need to expand your company in any way? Are you investing in a new product?
Also, identify how these funds will help you achieve these goals. Most importantly, identify how you anticipate paying off your loan in the long run.
In some cases, a business loan may not actually be the wisest decision. Some business owners with bad credit find luck in a secured business credit card, for example.
This can help build credit quickly while providing the immediate funds required.
Other individuals choose small personal loans, which can provide the personal funds needed to turn a business around.
If you’re trying to determine if a bad credit business loan is best for you, we can help.
2. Know What May Be Assessed
Depending on the lender you choose, you may have to provide some key pieces of information when applying for bad credit business loans.
For example, if your business has been in operation for over a year, you may have to indicate its annual revenue and current assets.
This is important, as some lenders will determine interest rates based off of your revenue, calculating APR as a percentage of your assets.
You may also be able to provide unpaid invoices, for which some lenders will give immediate cash. These invoices can help indicate the overall value of your business.
Other lenders may require a soft pull credit check. This means that they inspect your credit history but doing so doesn’t impact your score itself (like a hard pull). These no credit check loans are a great option if you are personally backing the business, and don’t want to hurt your credit score.
These factors will be important for lenders processing applications from individuals with higher scores on the low-range credit bar.
For other loans, you may not even need to provide numbers on revenue, invoices, and assets. At the very least, however, keep this information on hand so that you can submit a competitive application.
3. Research Lenders and Compare Rates
When applying for a loan of any kind, it is essential to research lenders thoroughly and compare any rates you receive.
This is important as there are thousands of viable lenders out there. If you are new to the world of business loans, it can be easy to make a snap decision and end up with a loan that offers poor or unmanageable terms.
Because bad credit business loans are designed for higher-risk borrowers (those with low credit), these are also likely to have higher interest rates and fees.
Browse both local and online lenders as you do your research. Pre-qualify for loans, if possible, so that you can keep rates and offers in front of you.
Keep in mind that interest rates aren’t the only factor to compare. Some lenders will require borrowers to pay installments on a weekly basis, for example, rather than monthly.
Others may have shorter or longer repayment terms, caps on the amount you can borrow, and fees for early repayment. Read all of the fine print before choosing lenders and applying.
Once you identify a lender that offers the best terms for your business needs, it’s time to apply.
Most lenders, such as Bonsai Finance, make this process easy, enabling applicants to request a loan online. In many cases, business owners can receive funds within minutes or hours of approval.
If you have any questions throughout the application process, be sure to reach out to a lender representative.
Your Guide to Bad Credit Business Loans
Bad credit business loans enable all business owners to enjoy the working capital they need to keep their company afloat. They function much like normal business loans but vary in their terms.
When researching bad credit business loans, be sure to identify your financial needs before comparing rates from lenders. There may be other options available to you that don’t involve a loan.
Understand what lenders may look at when processing your application and always compare quotes offered.
At Bonsai Finance, we love giving our clients the financial freedom to pursue their goals. Learn more about our mission here!