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For most traditional lenders, qualifying for business loans with bad credit history is difficult if not outright impossible. However, due to various circumstances, having less than ideal credit is a problem for many businesses, even those that are successful. It’s for this reason there are lenders who offer business loans for bad credit applicants. If you are looking for a business loan for bad credit, our brokers can help you find the right lender and secure the financing you need. Talk to Break Free Home Loans today to compare lenders and begin your application.
What Are Business Loans For Bad Credit
Can Personal Credit History Impact Getting Business Loans
How To Check Your Credit Score
Your business credit score will give lenders an indication of how risky you are as a borrower. While both your business and personal credit score will play a role in your ability to get a loan, they aren’t the same thing and have different implications. Your personal credit score is based on your individual consumer credit activities, while your business credit file contains information on your commercial credit activities. They don’t affect the other, but can work in tandem to support whether your business is creditworthy. You can get a credit report from your bank, financial advisor or third-party credit agencies. Each may differ in their method of calculating your score. This determines your ability to get a loan.
Your business credit file will include information such as:
- Your company details such as information on company structure or shareholders
- Registered defaults or missed payments
- Potential loan enquiries
- External administration
- Public record information such as legal matters or actions taken against your company
How Much You Can Borrow
How To Get Approved For Business Loans With Bad Credit History
Choose A Smaller Sum
Only borrow what you need. Choosing a smaller sum for your loan amount will make it easier for you to qualify with a lender. Lower borrowing amounts also mean repaying your loan off sooner, with a smaller monthly repayment amount. It’s why it’s important to determine what you need the loan for so you’ll know exactly how much you need to borrow and how much you can afford over how long.
Get Rid Of Outstanding Loans
Applying for many loans in a short amount of time will incur many hard credit checks. Not only are multiple loan applications documented on your credit file, they will negatively affect your credit score. Pay off any outstanding loans, debts and other payables to assure lenders of your financial security and ability to repay your loan. Otherwise, this will create further expenses on top of your proposed loan obligations. You may not have enough to budget for your repayments.
If you don’t have assets to provide as security for a business loan, having a guarantor or directors guarantee can offset this requirement. For a small business without much working capital, those with seasonal income or with assets tied up in legal disputes, this can mean the difference between getting your loan approved or rejected. A guarantee lets lenders recover outstanding debts from the guarantor if the business cannot make repayments. This is the biggest risk for a guarantor—having to pay back the loan when the original borrower doesn’t or can’t. If you’re planning to become a business’ guarantor, you have to be confident the company can afford the loan and pay it back on time. Otherwise, you’ll have to assume responsibility for the debt and it will show up on your credit profile.
Offering collateral as loan security will help your chances of approval when you have bad credit. Tangible assets such as inventory, property, accounts receivable, machinery, stocks, corporate bonds and other working capital can qualify as collateral. This depends on what your lender is willing to accept as loan security.
Things To Take Into Account When Getting Bad Credit Business Finance
How To Improve Credit Score In Melbourne?
Reduce Your Limit
Check For Errors
Paying Bills On Time
Find The Right Lender
What To Use Your Loan For
There are a number of things you can use your business loan for, including:
- To buy new equipment or machinery
- To renovate your premises
- To buy stock or inventory
- To cover the costs of marketing and advertising campaigns
- To expand your business into new markets
- To cover the costs of hiring new staff
- To pay off existing debts or loans
- To finance the construction of a new premises
- To buy a new business vehicle
Alternatives To Bad Credit Business Loans
- Venture capital funding: This is where investors provide funding for your business in exchange for equity. This is investment from firms or individuals who expect a high return on their investment, and is typically only available to businesses with high growth potential.
- Business grants: There are various government and private sector grants available for businesses, although these can be difficult to secure. They are often competitive and subject to eligibility criteria.
- Personal loans: If you have a good personal credit rating, you may be able to take out a personal loan to finance your business.
- Family and friends: You could ask family and friends for financial assistance to start or grow your business.
- Debt crowdfunding: This is where people provide funding for your business in exchange for a share of future profits.
- Bank loans: Banks can be a source of finance for businesses, although they may require security such as property or equipment.
- Hire purchase: This is where you pay for goods or equipment over an agreed period of time, usually with interest.
- Invoice finance: This is where you sell your outstanding invoices to a third party at a discount, in order to release cash that is tied up in them.
How To Choose A Lender For Bad Credit Business Finance
- Look for a lender who specialises in bad credit business loans. There are many lenders out there who specialise in this type of financing.
- Make sure the lender is willing to work with you to create a repayment plan that is feasible for your business.
- Get quotes from multiple lenders so that you can compare interest rates and terms.
- Read reviews of the lender online to see what other businesses have to say about their experience.
- Ask the lender for references of other businesses they have financed.
Have Any Questions?
Frequently Asked Questions
How To Get A Business Loan In Melbourne If I Have Bad Credit?
What Is The Minimum Score For Getting Bad Credit Business Loans?
The minimum score for bad credit business loans is usually lower than what is required for a standard business loan. However, the terms and conditions of the loan may be less favourable, such as a higher interest rate or shorter repayment period. If you have bad credit, there are a few things you can do to try and improve your chances of getting approved for a business loan:
- Get a copy of your credit report and check it for errors. If you find any, dispute them with the relevant credit agency.
- Try to improve your credit score by paying off any outstanding debts and making all future repayments on time.
- Shop around for lenders who are willing to consider bad credit applications.
- Consider a secured business loan, where you use an asset as collateral to secure the loan. This may improve your chances of getting approved, but it also means that you could lose your asset if you default on the loan.
In general, the qualifying criteria for bad credit loans are similar to unsecured business loans. Most lenders are able to provide options if you:
- Have been trading for at least 12 months
- Have an ABN/ACN
- Are registered for GST
Lenders can look into your ability to repay their loan value beyond your credit score. They can assess revenue streams, business performance and other liquidity ratios.