Businesses need capital to expand. Very often, the fastest way to achieve growth is to borrow the necessary capital, as opposed to saving it up over a longer period of time. This usually means approaching a bank or other financial institution for a loan.
As a business owner, you may be worried about how your poor personal credit score will affect the chances of you securing that business loan. While it’s true that bad credit business loans can sometimes be hard to come by, it’s not always the case.
In fact, a bad credit business loan can be much easier to receive than you think! Whether you plan on going to a bank or an institution that is specifically designed to provide financing for small business, there are certain things you can do to improve your chances of getting the money you need.
Business Loan Fundamentals
When banks, credit unions or other financial institutions vet potential borrowers, there are a number of important factors they use to determine the risk involved in offering a small business loan. A personal credit score is only one of them. The factors banks are interested in include:
Understanding your specific small business needs
Every small business is unique, and so are their needs. The chances of small business owners receiving a loan is more likely if a lender is able to clearly comprehend how your business works, and imagine how it will grow in the short, medium, and long term.
The specific project you need the loan for
Small business loans are available in a variety of different forms. The ability to secure a loan will vary along with your requirements. Do you need to buy two small vans to deliver more orders to your customers? Or do you need to finance the construction of a 3,000-foot office space? Broadly speaking, lending requirements increase along with the amount of funding requested.
Your personal credit score
Personal credit scores can be important in some cases, but your personal credit history or business credit is generally not the only deciding factor, just part of the overall assessment. Start by understanding your credit score, and the reasons for your current ranking. Then consider how you can build back up your personal credit.
Your business credit score
Understand that in addition to your personal credit score, your business has its own credit score which is separate from personal credit and has a distinct rating system. Some of the factors that contribute to business credit are payment history, cash flow, net worth, and more.
The health of your small business
A growing business that has a strong business plan and excellent prospects is an attractive borrower whether from a bank or other financial institution’s perspective.
As you might expect, the health of your small business is very often the most important factor, not your bad credit score. Getting a loan with bad credit is within your reach!
What is Considered a Bad Credit Score?
Different lenders have different evaluation metrics, but generally speaking, credit scores fall within the following ranges. However, as always, remember that credit scores (whether a business credit score or a personal credit score) are not the only thing lenders care about.
- Excellent (720 – 850)
- Good (670 – 719)
- Fair (620 – 669)
- Poor (500 – 619)
- Bad (000 – 500)
With an ‘Excellent’ or ‘Good’ score, banks consider you a low risk borrower and provide attractive lending options. As you enter the ‘Fair category’ or below, you are considered higher and higher risk. Additionally, the lower your score, the higher the interest rate generally is from banks.
What Happens If I Need Business Financing But Have a Poor Credit Score?
As we mentioned above, it’s not the end of the world if you need to find a business loan with bad personal credit. However, you will likely encounter a number of consequences. Bad credit borrowers are, for example, generally end up paying a higher interest rate on the loan.
Additionally, you’ll likely have to wait longer for your small business loans when dealing with a bank. A bad credit score will slow down the process, as the bank will be interested in taking an extra close look at all the details before providing loan approval.
Banks Are Not the Only Answer
Not every small business lender is a bank, and not all borrowers need banks to find the financing they need. Alternative sources of financing can be of great value, and many of those alternative lenders don’t have minimum credit score requirements.
Merchant Cash Advance
Some companies are ideal candidates to receive merchant cash advances. Merchant cash advances use a business’ sales history as the basis for the loan, and once the money is advanced, loan payments are deducted from the company’s sales on a daily or weekly basis, whichever makes the most sense.
These are ideal for (you guessed it) E-comm sites that rely on credit card sales. E-commerce financing turns a business’ cash flow into immediate working capital that can be used right away. The money can be spent on online ads, to hire staff, to purchase inventory – whatever the business needs. Online lenders like Merchant Growth are great for this particular niche, offering loans of between $5,000 and $500,000. The best part? The loans can be approved in as little as 24 hours!
Line of Credit
Business credit cards can be valuable tools in some cases. However, the interest rate on a business credit card can be troublesome if money suddenly becomes tight due to unforeseen circumstances. The value of a business line of credit is that money can be borrowed, repaid, and borrowed again – all within the context of a more favorable interest rate.
The Value of Merchant Cash / Business Cash Advances
The decision to offer this type of financing is mostly based on sales volume, sales history and sales projections, so having a minimum personal credit score is not usually a factor to worry about.
By satisfying a number of prerequisites (such as the amount of time in business and minimum monthly revenue numbers), small businesses in Canada can find alternative financiers like Merchant Growth to be the best option for their needs – even more so than banks!
Because banks are so risk averse, and because the cost of vetting clients is the same whether they need a loan of $25,000 or $250,000, they often reject smaller applicants out of hand.
Fortunately, companies like Merchant Growth are happy to provide business lending options to any small business owner. With a focus on customer care, complete transparency, and efficiency, Merchant Growth uses the latest technology to connect with, vet, and lend to small businesses across Canada with financing from $5,000 and $500,000.
Want to learn more? Contact Merchant Growth today!