Business Loans with Bad Credit

When obtaining business finance via traditional banks and lenders, an adverse credit status can be another barrier or hurdle in finding a lender who is willing to lend to your business.

What many businesses do not know, is that there are many options of finance for businesses with poor credit, it is just knowing who and where to look.

In the UK, there are lenders who specialise in “high risk” finance. As with everything, the higher the perceived risk the higher the cost or interest rate is. This is what is known as “rate for risk”. This does vary between lenders based upon the applicant’s credit status, current financial commitments/outstanding commitments and credit history. It is also an important factor for the future plans of the business. A question an underwriter will ask is, “how will the finance I potentially provide help the business perform in the future?”

In fact, there are several lenders who favour loan applications from clients and businesses with bad credit, this is their niche market.

Every lender has their own ideal market and target audience, with some preferring small business loan amounts in large volumes, or large loans in small volumes. Some lenders focus on loan purpose such as asset finance or say commercial mortgages. Others focus on bad or adverse credit business loans.

There are several factors that affect your credit status such as:

• Missed payments
• CCJs
• Loan defaults
• High amounts of debt

However, how much these determine whether you can get a business loan varies between lenders.

In short, it doesn’t always. Companies and individuals can get a loan, even with bad credit. However, it does;

• Make it harder to find a lender willing to accept your application
• Possibly make it more expensive in terms of interest and repayments
• Limit the number of lenders you can apply with

Some lenders will accept security on loans or guarantors to mitigate some of the effect of the applicants credit status, making them more likely to accept the application.

Navigating through the large number of lenders out there can be a daunting task for any business owner. It is time consuming and can be a deflating experience if your applications are declined, which is likely if you are applying with the wrong type of lender.

• Do your research – what lenders are “bad credit” lenders
• Do not go “application mad” and apply with every lender you can find
• Read all documentation thoroughly to make sure you are making informed decisions
• Sole trader? What is your personal credit score? Many lenders look at this when deciding on applications
• Seek expert advice on your options [find out more]
• Check loan criteria to make sure the lender meets your requirements
• Minimum/maximum loan amounts
• Minimum annual turnover
• Outstanding debts
• Loan terms
• Loan security

This may sound like catch 22, but one of the quickest ways to improve your credit score is by getting more credit and then paying your payments on time and sticking to your credit agreement. Lenders look at your past behaviour and repayment profiles. Keeping to your credit agreement gains you a lot of brownie points by showing you are a good customer.

But what if I am unable to obtain more credit now?

If you are unable to get more credit, stop applying, try to pay off any outstanding debts (on time) and start reapplying 6-12 months after your last business loan rejection.

• Do you know which ones?
• Do you have time to research and seek these out?
• Are you willing to further effect your credit history with a whole host of declined applications?

If you are unsure on how to progress, where to look or who to apply with then your best course of action would be to use a finance broker.

Using a broker has many advantages, the major advantage here is that a good finance broker will have “bad” credit lenders in their funding pool. But more importantly they know which lenders are more likely to accept a bad credit application based on the applicant’s credit status, finance requirements and company status.

For more information on bad credit funding options, do not hesitate in contacting us for more information.