⏱Last Updated on
Bad credit business loans can often provide a valuable lifeline for business owners.
Not only can they help to keep the company afloat and keep people employed. But they can also be used for businesses with bad credit who need money to grow their business.
CashLady takes a look at what loan options are out there for businesses with bad credit.
Why do businesses need bad credit loans?
Many small businesses do not have a good credit history or simply have no credit history at all.
This can make it difficult for businesses to secure a loan from a high street bank or other loan providers.
Many businesses need finance at some point. Bad credit business loans could be the only option for some small and medium businesses.
If for whatever reason, a business cannot pay its staff on time, it risks losing its staff. This could be the start of a downward spiral for a business. Having access to finance could give the company the capital to carry on trading.
Small businesses can struggle to reinvest money back into their business. Reinvesting money is what allows businesses to grow.
Bad credit business loans can enable companies to invest in things. Things such as marketing or people, that they would not have been able to invest in otherwise.
Many businesses heavily rely on their clients paying invoices on time. If a client does not pay an invoice on time, this can result in a cash flow problem.
Bad credit business loans can help to ease this cash flow problem and make sure that essential things, such as staff wages, are paid for.
What causes businesses to have a bad credit rating?
Anything from late credit card payments to county court judgements are things that can cause businesses to have a poor credit rating.
Even businesses who are doing well can find it difficult to get a more ‘traditional’ bank loan.
It is not only a bad credit rating that businesses need to worry about. Having no credit rating can also be a problem and can act as a barrier to getting more ‘traditional’ finance from banks.
Are business loans available from banks?
Since the financial crisis, it has become more difficult for small businesses to secure loans from banks.
Even if a loan through a bank is possible, banks often require security for the loan.
Obtaining a loan from a bank can also be a slow process and may require companies to draw up time-consuming business plans.
Banks will usually only lend to businesses who have a good credit rating. More often than not, they are unwilling to take the risk on those who have a poor credit rating, even if the business is doing well.
This approach can stifle small businesses who want to borrow money to allow them to innovate and grow. For many businesses, the lack of access to finance is a ‘catch-22’ situation.
What are the benefits of choosing bad credit business loans?
Bad credit business loans are often the only option for businesses with a poor credit history or no credit history.
- Business loans from bad credit lenders rarely require a business plan. Business plans can often be complex to write. They require businesses to invest time and resources that they may not have, into their production.
- Bad credit business loans are often unsecured. This means that businesses do not have to put up any of their assets as security for the loan.
- Bad credit business lenders provide fast access to cash to allow a business to grow or pay an emergency expense. Money can be with businesses within a few hours of them being approved for the loan.
Sometimes, a business needs cash fast. The long application process that high street banks are known for can make bad credit business lenders an attractive option. This is the case especially because banks will rarely take on any business with a poor credit history anyway.
Bad credit business loans can be a form of support for businesses who would struggle to get a loan from a bank because of their credit rating.
What are the disadvantages of taking out a bad credit business loan?
The interest rates on bad credit business loans can often be higher than those offered by high street banks.
Because of this, some businesses who have a better credit rating may benefit from applying for a business loan with a bank.
Who offers bad credit business loans?
Boost capital says that a business’ gross monthly sales and revenue generating ability play a significant role. More so than their credit score when it comes to being approved for a loan.
They offer loans to businesses with a poor credit history and do not require any business plans or extensive financial records.
Once approved for a loan, businesses could have the money in their account in 2 business days.
They offer loans amounts from £3,000 to £500,000.
Ortus Business Finance said that they consider loan applications on their individual merit. This is rather than solely on credit history.
Businesses can obtain unsecured loans from £1,000 up to £50,000
What do businesses need to be aware of?
Businesses who are looking to obtain a bad credit business loan should make sure that they will comfortably be able to afford the repayments. Both for now and in the future. This is the case with any type of loan.
If a business does not pay off the loan on time or miss repayments, this could adversely affect their credit rating even further.
Conversely, by taking out a loan and paying it back on time, a business could raise their credit rating.
Bad credit business loans also tend to have higher interest rates than more traditional loans.
What are the alternatives to bad credit business loans?
There are lenders who offer alternatives to bad credit business loans. Such as, invoice financing or merchant sale financing.
Many say that they will look at the ‘bigger picture’ of a business and how it is performing today, rather than just its credit history.
Merchant sale financing
Liberis offer businesses a cash advance based on their future credit and debit card sales. No security is required to take out this type of loan.
There are no monthly repayments. Instead, the money is paid back via a percentage of the daily card takings.
The advantage of this type of loan is that businesses will repay at a pace that coincides with how fast they are earning money from their customers.
Invoice financing is a way for businesses to borrow money through their customer invoices.
Market invoice offers the ability for businesses to sell their invoices when they need finance.
On their website, they boast that customers can sign up, sell an invoice and access funds all on the same day.
There are platforms like FundingTree who can help you to raise the money you need. This money comes from investors who are interesting in putting money into your business.
However, this can often be a slow and time-consuming process as businesses need to prepare a pitch.
There is a limited amount of money available through the government for businesses who have a poor credit history but need to borrow.
They may not be the right option if a business needs money relatively quickly, as the application process can be lengthy.
Friends and family
Some businesses turn to friends and family to borrow the finance they need.
However, it is not always possible to borrow the amount you need. Also, it can lead to breakdowns in relationships through financial disputes.
Business loans do not have to come from high street banks.
In fact, many small businesses can struggle to get a loan from a bank if they have a poor or non-existent credit rating.
Bad credit business loans can often be the only option for businesses who need to borrow cash to grow or to pay emergency expenses.
Bad credit business loans can also be useful if clients have not paid their invoices on time and cash flow is a problem.
More lenders are appearing who will look at how a business is running today. Rather than making a decision solely based on a business’ credit history.
For businesses with a bad credit rating who require finance, there are also new and innovative ways to borrow money. This includes merchant sale financing or invoice financing.