The reality is it’s possible to get a business loan to expand your business, hire more people, or execute a new strategy, even if you have bad credit. You just need to get creative in your search for financing than walking to your local bank.
Many people have bad credit stemming from the tough financial times of 2008-2009. Some have bad credit because of medical emergencies or family difficulties, such as divorce. And some business owners have bad credit because of business plans in the past that weren’t fully successful.
While bad credit is nothing to be ashamed of, banks will be less likely to lend to you if your credit score is in the average to poor range (300 to 629). You can increase your chances for loan approval if you choose one of the options below:
Where to get business loans if you have bad credit
1. Alternative lenders
The first method of getting a business loan if you have bad credit is to approach alternative lenders.
These lenders, unlike banks, are more likely to focus on the financial picture in your business. If revenues and profits are strong and you have a several-year business history, you can apply.
The key with alternative lenders is to carefully read the fine print, and compare annual percentage rates (APRs), fees, and terms. (The APR is arrived at by adding the interest rate and fees.) The lower the APR, the lower the monthly installment payment.
The following lenders don’t require that you have a minimum credit score for a business loan.
To get a loan from Kabbage, you need to have had a business for a minimum of a year and have had minimum revenue of $50,000. You can get a business line of credit for amounts from $500 to $100,000. Interest rates begin at 36%.
Funding Circle focuses on loans to small businesses. The business must have been operating for a minimum of two years. Yearly revenue must be a minimum of $150,000. You can get a loan in amounts from $25,000 to $500,000. Interest rates begin at 8.99%. Funding Circle’s loan origination fees range from 2.99% to 4.5% of the loan amount.
With LendingClub, you’ll need a minimum credit score of 600, so it isn’t an option if your credit score is below that. LendingClub requires a minimum of $75,000 in yearly revenue, and the business should have been operating for two years. Loan amounts start at $5,000 and go as high as $300,000. Interest rates begin at 8%.
OnDeck is Google’s venture capital division. Businesses that have been in operation for at least 12 months with an annual revenue of at least $100,000 may qualify. OnDeck will look at your personal credit score, but a minimum of 500 will qualify you. The provide loans in amounts starting at $5,000. The interest rates are from 8% to 39%. Larger loan amounts, over $50,000, need to show that the business has been operating for three years or more.
Street Shares requires a credit score of at least 600. They also require at least $25,000 in revenue and for the business to have been operating at least one year. You can get a loan of up to $100,000. The APR ranges from 9% to 40%.
Solutions based on business revenue or other factors
Although banks may be unwilling to advance you a traditional business loan, there are ways to work with banks and other lenders such as credit unions if you have good revenue coming in.
These methods include the following.
2. Revenue-based loans.
If you make steady business deposits to a bank, the bank may be willing to give you a business loan based not on your credit, but on your revenue. These are termed revenue-based loans.
Usually, a business can get a loan that equates to 10% of its yearly deposits. In other words, if you have revenue of $50,000 annually, you could be eligible for a revenue-based loan of $5,000.
Business owners can be funded in a week in this type of loan. The APR is likely to be slightly higher than a conventional bank loan, but lower than the higher rates of alternative lenders. Some banks may require that you repay automatically every day based on the deposits in your business accounts.
3. Merchant cash advances.
Merchant cash advances are loans that are based on your credit card sales. Essentially, you negotiate with the bank to give you a loan in which they accept payment as a percentage of your credit card sales going forward. If you have a record of steady sales via credit card in your business, banks may look upon this very favorably.
Be careful to get a firm APR, though. APRs on this kind of funding range from 12% to 38%. Also, here too, the lenders may want a fixed portion of the business’s credit card volume every day.
One lender that provides merchant cash advances is Balboa Capital. It has been providing loans for 19 years.
4. Loans on outstanding invoices.
Several companies allow you to borrow on a percentage of your business’s unpaid invoices. This is called receivables financing or invoice discounting. One company to consider for this type of loan is OnDeck.
Credit Partners. If you have a business partner who has good to excellent credit, and he or she is willing to apply for a business loan or credit card, this can be a good way to get a line of credit. If you don’t have a business partner, but you do have a strong business, you might scout around for someone willing to become a business credit card partner.
What is needed to get a business loan if you have bad credit?
While lenders vary, in general, you will need the following documents to apply for a business loan.
- Business bank statements
- Balance sheets
- Profit and loss statements
- Personal financial statements and bank statements (not all lenders require these, but some will)
- Tax returns for the past five years
- Incorporation and partnership paperwork, if any
- A detailed business plan with financial projections
- Your résumé
- Contracts if you lease or rent equipment
- Your business plan
- A detailed statement of what you want the money for
Despite your bad credit, it is a good idea to pull your credit score before applying.
Your score could be higher than you think, which would give you more options among the lenders given. And, credit score reports tell you the areas that your credit needs improvement. If the low score is due to not paying bills on time, for example, you can begin a plan to pay your company’s bills in a timelier manner.
While there are certainly ways to get a business loan with bad credit, you will find terms more favorable if you have good credit. It’s worth your time to develop a plan to raise your credit. Nav is a company that specializes in providing credit advice to businesses that allows you to check your business’ credit summary reports for free.
How long will it take to get a business loan?
Lenders vary widely in how long they take to process a loan application. Some online lenders may approve a loan application in one or two days. A merchant cash advance may take several weeks.
Be sure to supply any documents requested in the application. An incomplete application will delay the approval process.
Also be sure that the documents are clear and easy to read. Banks sometimes return documents that are not legible.
In general, the amount of processing time depends on:
- The lender’s policies
- The amount of the loan
- The completeness of your documentation
The Bottom Line
Bad credit is a challenge when applying for a business loan, but that doesn’t mean you’re out of options. SuperMoney can help you filter dozens of online lenders according to their eligibility criteria. You can also read free expert reviews and consumer comments.