Receiving A Small Business Loans With Bad Credit
Many business owners run into a common situation of needing capital for their business, be it to pay bills, for short-term projects, or to finance equipment and expansion. However, sometimes a poor credit score (FICO score) can get in the way. Small business loans for bad credit are however attainable and your business can get one, even if your credit is low.
Small Business Loans For Bad Credit
Bad credit usually falls under the 620 FICO score range and can impact what you can borrow. For equipment financing and term loans, you will see a higher interest and APR (annual percentage rate) than for businesses with a credit score above 620. However, other factors like your business cash flows also impact the APR of small business loans with bad credit. Having sufficient cash flows to cover the periodic payments for your desired loan will help your APR when the lender is assessing your risk profile for capital request.
Types of Small Business Loans For Bad Credit
There are multiple options for capital when it comes to small business loans for bad credit. These include short-term loans (less than a year), which have an average APR of 40%, short-term lines of credit, which have an average APR of 49%, and merchant cash advance loans, which have an average APR of 67% (which is applied to the purchase of the business’s future credit and debit card receivables). These capital options are short-term based, which enables the lender to take on less risk. Additional small business loans for bad credit can include receivable financing, which provides you capital as a percentage of your receivables (lower percentage with bad credit), with receivables being collateral.
Tips For Small Business Loans With Bad Credit
Taking out a conservatively sized business loan (that you are sure your current cash flows can support) will help you improve your credit score and build a positive history with the lender. Once you pay off your first loan with the lender and prove that you are a less risky borrower, you will be able to borrow at more favorable rates.
You can view a list of top lenders that can provide small business loans for bad credit, may it be short-term loans, lines of credit, and merchant cash advances.
Small business loans for bad credit are options for small business owner’s who have a FICO score below 700. Small business owners with bad credit will have a hard time getting loans from banks that are long term, as banks primarily look at credit scores. However, direct lenders are a great alternative for small business loans with bad credit, as direct lenders focus more on the business fundamentals such as industry, time in business, and cash flows, which can be favorable for small business owners who need small business loans with bad credit. Additionally small business loans for bad credit have higher interest rates, but are usually unsecured, which is less risky for the business owner.