Bad Credit? Where to Find a Small Business Loan

No matter how successful a business might be, running it often requires extensive financial input. More often than not, your business will at some point need a loan, whether to meet unexpected emergencies or to pay for long-held plans. Given that, it is not uncommon to see even big and seemingly successful companies having to rely on loans. Of course, different businesses have different levels of credit history. Some are so successful that lenders will clamor for the opportunity to serve them, often times soliciting them with enticements. Those businesses will generally have their loan requests approved almost instantly. Meanwhile, there are other businesses with credit histories that are so bad that very few lenders are willing to lend them money.

What Is Bad Credit?

Bad credit is a credit history which is below a minimum, sometimes arbitrary, threshold that banks and lenders set to weed out the unacceptable risks from the acceptable. A company gains a bad credit history when they have failed to maintain a previous credit agreement. This could mean you didn’t pay your previous loans on a timely basis, that you skipped payments, or that you didn’t pay the loan at all.

Businesses and individuals all have a credit history; this report is comprised of regular reports from their lenders, as well as any finance-related legal dealings (such as a lien on their assets, bankruptcy filings, IRS liens, etc.), all of which are a matter of public record. If after investigation (typically, a “hard pull” on their credit history), the business is seen to have defaulted on their obligations, it will be very difficult to get new loans.

Lenders certainly don’t want to lose their money, so they need a guarantee that the borrower will return the loan when due. Because of that risk, most lenders take a business or personal credit score very seriously.

What exactly is a credit score? A credit score is the rating of a potential borrower by a credit reporting agency; there are three key players in this field – Equifax, TransUnion and Experian. The credit score symbolizes the likelihood of whether or not the debt would be repaid. A credit score rating can range from as low as 300 to as high as 850. Although an individual’s credit score can vary from one credit bureau company to another, and is sometimes grossly inaccurate, lenders still rely on it from a statistical standpoint.

Credit scores with higher numbers are “statistically” more likely to repay their debts as agreed than those with low numbers. Any score less than 650 is considered “bad” credit, from a statistical standpoint. Businesses within this range often learn to their chagrin that obtaining credit can be quite difficult; in the end, they are forced to pay a higher interest rate. It’s hard to fault the lenders for this because they are taking a risk lending money to people with a credit score below 650.

The definition of a “good” and “bad” loan is relative; different lender set different standards. Some lenders may lend you money even if your credit score is below 650 while others may not.

760 to 850

This is an exceptional score, if your credit score falls within this range, getting loans wouldn’t be a problem, and you’ll be paying the lowest interest rates.

700 to 759

This is the second best range; lenders will also not have a problem granting you loans, and the interest loans and terms will be commensurate with that rating.

660 to 699

This is a fair score; though some lenders might turn you down, there are still quite a number that would be willing to give you a loan. The terms of the loan may be strict, and the interest rates they charge will be higher.

620 to 659

This is categorized as a poor credit score; lenders, especially banks, will likely turn you down, but you’ll still get few platforms outside of the mainstream lenders who would be willing to give you a loan, of course with commensurate terms and high interest rates.

620 and below

If your credit score falls within this category, expect the worst credit terms and rates.

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Getting a loan with bad credit used to be the most difficult task in the business world. Fortunately, within the past decade, there are options with many alternative lenders willing to give you a loan even if you have a low credit score. Most alternative lender would be willing to ignore your low credit provided you can compensate for it elsewhere, say with good cash flow (if the business has been in existence for over one year) and quality collateral. If your score is below 680, getting a loan from a traditional lender is next to impossible.

There are three types of credit every business owners can benefit from; long term loans, business credit cards, or a business line of credit. These options make it easy for a business to finance their operations. If you get turned down by a bank or another traditional lending platform because of your low credit score, then it’s time to consider other options, like online lenders, merchant cash or factoring. Most of the lenders that dismiss a low credit credit score will charge high rates and have generally unfavorable terms, but it can be worth it, though it will be up to you to make that decision

Best Option if Your Credit Score Is Below 500

If your credit score is in this category, you are limited to only a few options. The only way you can hope to work with a lender is to complement your low score with good cash flow.

Your best option at this point is an alternative lender, like Kabbage, for example. Kabbage is a reliable online lending platform that prides itself on giving businesses another chance to obtain financing, despite having a low credit score. Kabbage doesn’t put too much weigh on your credit score; they are primarily concerned about your cash flow. Hence, if you have a bad credit score, you can make up by maintaining steady cash flow.

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Processing loans on Kabbage is easy; all you have to do is to create a profile on their online platform, complete the necessary documentation, and in a short time, you will get a decision; all these processes could be handled the same day. The platform tries to give business owners instant access to loans, with the introduction of Kabbage card.

Because they are lending you money despite a low credit score, Kabbage will be taking on more risk than the traditional lenders, thus it is understandable that their rates are higher. Kabbage does offer a line of credit up to $250,000, which is more than adequate for most small businesses, but if you need more, you’ll have to consider other options.

Overall Best Lending Options for Bad Credit Score Borrowers

Fundbox is another option for borrowers with a poor credit score. They have helped thousands of struggling businesses stay afloat. Unlike many other alternative lenders who only provide traditional term loans, Fundbox offers business owners a revolving line of credit. Access to Fundbox is relatively effortless, and once you have met the requirements, you will be funded within 24 hours (typically, though there are exceptions). On Fundbox, you’ll be able to access loans of up to $100,000 with interest rates that range from 10% to 79%, with borrowers with a good credit score getting the preferential low rate and poor credit risks getting the higher end of the range. If you do have a bad credit, you will need to show that your business has been in operation for at least six months.

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The Fundbox line of credit has a repayment duration of 12 to 24 weeks, with payments made on a weekly basis. Although the repayment duration is shorter than it would be for other lenders, the line of credit feature will allow the borrower to redraw on additional funds after a payment has been made.

Because obtaining a loan from Fundbox isn’t dependent on a great credit score, this makes them an excellent option for businesses with poor credit. Using its own qualifications standards, Fundbox will assess the creditworthiness of the potential borrower. If you qualify, you can expect to have your line of credit funded within 24 hours. Fundbox boasts of an approval rating of 62%, making Fundbox the top destination for borrowers with a bad credit score.

Fundbox’s one major drawback is it’s $100,000 lending limit. This makes it impossible for business with a need for more than $100,000 to get a loan. Also, a potential borrower should understand that the weekly repayment requirement may significantly alter the cash flow of an average business.

Best Option for Businesses with Large, Long-Term Projects

As a small business owner trying to embark on a huge project, you’ll require a lot of funding. The best place businesses can get funding is with a traditional bank, but what happens if the business has a bad credit score? Getting a loan will be difficult but, fortunately, not impossible. Ondeck is one of the few lending platforms that offer high dollar loans (up to $500,000) to businesses with a credit score of at least 600. The best part of using Ondeck is that its repayment period can range from one year to three, giving most borrowers sufficient time to pay back the loan. This makes Ondeck a go-to option for businesses that are ready to embark on a long term project. Funding is also easy, and once you have met all the requirements, you will be funded in three business days. Besides a traditional loan, Ondeck also offers a line of credit option.

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Loan rates start at 9% and climb, of course, depending on the borrower’s credit history. Nonetheless, at the low end of the Ondeck rate scale, this makes Ondeck one of the most affordable lending options in the industry.

One caveat to borrowing from Ondeck is that there is no benefit for early repayment. Its loan term is the best among alternative lenders, ranging from one to three years. This means with a good credit profile, you’ll be able to get a loan of $500,000 and payback over a period of 36 months. Repayment of the loan could either be on a weekly or daily basis. Potential borrowers should note that the accelerated repayment schedule may have a negative impact on cash flow, but borrowers with a poor credit history will have to weigh that disadvantage against the benefit of the loan in the first place.

Ondeck has enjoyed mostly positive rating from individuals and businesses that benefited from its easily accessible loans.

Bad Business Credit Loans with the Most Flexible Terms

It is well known that loans to businesses and individuals with poor credit generally are with only unfavorable terms. For many struggling businesses, this is a Catch-22 proposition. On the one hand, you desperately need the funding, but on the other hand, getting the funds at such unfavorable terms could make your situation even more precarious. For businesses with poor credit, Loanbuilder stands out among its peers, by offering flexible term, which gives struggling businesses an opportunity to get funding without worrying about worsening their financial position.

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Loanbuilder provides access to a business loan of up to $500,000 and the repayment duration of the loan will range from 13 to 52 weeks. A minimum credit score of 550 and annual revenue of over $100,000 is the requirement for doing business with Loanbuilder. Interest rates are surprisingly low, ranging between 2.9% and 18.72%, depending on the term. Loanbuilder allows you to choose the loan amount and repayment term, with your choice the determinant for the interest rate. Fees on Loanbuilder are fixed, so there’s no fear of interest accumulating over time.

Getting a loan from Loanbuilder is relatively easy; the only qualifications are a credit score of 550 or better, and a business in operation for more than nine months with annual income of at least $42,000. Once the application is completed, and you have provided a personal guarantee, you’ll be funded within 24 hours (typically). Loans from Loanbuilder are deducted automatically on a weekly basis.

Loanbuilder is not an option for a start-up entity, given the requirement for operations of at least nine months, and the 1-year repayment term may be inadequate for some borrowers. Nonetheless, Loanbuilder’s flexibility does make it one of the best lending options for borrowers with poor credit.

Best Bad Credit Loans for B2B Invoicing Businesses

Factoring is another viable option for generating funds for your business; it involves selling your invoices to a third party, for an initial 70% of the invoices’ worth. If you have a bad credit score, you may find it difficult getting a third party to buy your invoices. With Bluevine, however, the difficulty may be minimal. In order to obtain factoring with Bluevine, you need a leading B2B or B2G invoice over $5,000,with payment of that invoice due within 90 days, a credit score of at least 530 and your business should have been in operation for at least three months.

Through Bluevine, the loan limit can be as high as $5 million and interest rates start at 13%. Bluevine also offers long term loans and a line of credit of up to $250,000. Given their offerings, this makes Bluevine one of the best factoring options for businesses with a bad credit score.

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The cost of factoring begins at 0.25% weekly,which kicks in once you’ve gotten an advance of about 70% of the invoices you are selling. Once your customer clears the invoice, you’ll be funded with the balance, minus Bluevine’s fees.

For the majority of businesses, Bluevine’s invoice factoring is a great option. If your business does not invoice its customers you can get funding through Bluevine’s term loan or line of credit. The requirements for a loan or line of credit up to $250,000 is a minimum credit score of 600, an operating business of at least six months, and annual revenue of $100,000.

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Businesses may not survive the lack of regular funding, especially if they suffer from a low credit score. But a low credit score won’t necessarily doom your business. Though the terms offered might be less than favorable, given the credit score, they are still a great option.

Feel free to share and add your questions in the section provided below and thank you for reading.

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By Atreyee Chowdhury

Atreyee is an experienced instructional designer and has more than 11 years of experience in developing and deploying successful learning solution projects in both technical and non-technical domains. Her expertise spans across varied domains, such as automotive, telecommunications, banking and finance, ERP (SAP), customer service, information technology, etc. Atreyee’s past experience at IBM Global Business Services and Accenture in managing multiple short and mid-duration projects

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