Businesses, like people, have a credit score. If your business has a healthy cashflow, lenders may be more willing to lend to you if you have bad credit.

The disadvantages of bad credit are many:

  • Higher interest rates
  • Difficulty obtaining a loan

If you have bad credit, you’ll often have trouble securing small business funding. The loans that you’re likely eligible for will have less favorable terms.

Why Lenders Are Reluctant to Lend to Businesses with Bad Credit

Bad credit is a stain on your business. Lenders want to keep their risks low, and one way to minimize risks is to examine a company’s credit. The lender increases their risk exposure by lending to your business if credit is an issue.

The penalty for higher risk exposure is that the business will have to:

  • Search for non-conventional loans
  • Pay higher interest fees

You’re going to pay higher interest fees, limiting the amount of capital you secure, by having bad credit. Bad credit can be improved, and if you take out a loan that your business does qualify for, prompt payments can help boost your credit.

Over time, it’s a good idea to work on your business’s credit so that you can negotiate better terms.

Funding can be used for:

  • Equipment
  • Hiring
  • Inventory
  • Opportunities

If you’re low on capital and a loan would help you leverage opportunities, there are loan options for companies with bad credit.

Apply for low rate and long term small business funding with us here.

Bad Credit Loan Options and How to Qualify

If you have bad credit, and hopefully you’re working towards improving your credit, you still have options available to you. The loan type will determine how to qualify for each loan. You may or may not have your credit checked, depending on the loan type.

The most common small business funding options for a business with bad credit include:

Hard Money Loans

A hard money loan is a loan that is seen as a last result for business owners. These loans tap into the assets of the business, primarily the value of property. You’ll still need to apply for these and will have to review terms to see the right option for your business.

These short-term loans offer:

  • Competitive rates
  • Quick approval

But you’ll need to put collateral up. If you fail to pay the loan, you’ll lose the collateral, which may mean losing the land that your business is on.

Merchant Cash Advance

Merchant cash advances are used by companies across the country to assist with financing. These loans are fast and simple to apply for, but you will need to qualify for the loan. No collateral is required, and you’ll be receiving a loan for a percentage of your credit card sales.

Flexibility is limited and fees can be high, but you will gain quick access to funds and bad credit will be overlooked.

You will have to show a healthy amount of credit card sales to be able to qualify. Apply for a merchant cash advance now.

Equipment Financing

Equipment is an asset, and this asset holds value. You’ll likely need to be in business for a minimum of one year to qualify for equipment financing, and you’ll also need to prove that you have $50,000 or more in annual revenue.

If you have bad credit, expect to have to show proof of revenue and cash flow in recent months to qualify.

The major benefit of equipment financing is that the equipment will act as your collateral. If your business can prove that it has solid revenue and can provide recent financials, this is a good loan option.

Accounts Receivable Financing

Technically not a loan, this form of finance will use your current invoices in a trade for capital. You may have $10,000 in pending invoices that may have net-90 terms. If you can’t wait for the invoice to be paid, accounts receivable financing can help.

Invoices work as collateral, and the credit history of the invoiced businesses will be taken into account. These loans are fee based, so when the repayment is made may alter the fees you pay.

You may pay high fees, depending on repayment.

Businesses may need to provide current financials and a profit and loss statement for approval on a loan. A loan specialist will discuss all of your requirements with you. Get in touch with our loan specialist today.

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Henry Gross

Henry Gross

Henry Gross is the managing partner at Sutton Funding.

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