How To Get A Small Business Loan With Bad Credit

Securing a small business loan is a pivotal step for entrepreneurs aiming to start or expand their enterprises. However, for those with less-than-ideal credit scores, the path to obtaining financial support may seem fraught with obstacles. Contrary to common perception, having bad credit does not automatically disqualify you from securing a small business loan. This detailed guide will walk you through the process of obtaining a loan under such circumstances, including practical steps and considerations to enhance your chances of approval.

Updated: 3/19/24

Bad credit loan approved

1. Understanding Credit and Its Impact on Loan Applications

A. The Importance of Credit Scores

Credit scores play a critical role in the loan application process, serving as a key indicator of your financial responsibility to lenders. These scores, which range from poor to excellent, influence not only your eligibility for a loan but also the terms and interest rates offered.

  • Personal Credit Score: This reflects your individual financial history, including personal loans, credit cards, and mortgages.
  • Business Credit Score: For businesses with a more established history, this score assesses the creditworthiness of the business itself.

B. Checking Your Credit Scores

Before applying for a loan, it’s crucial to know where you stand credit-wise. Individuals are entitled to one free annual credit report from each of the three major credit bureaus. Additionally, various services offer access to business credit scores, sometimes for a fee. Knowing your scores upfront can help tailor your loan application strategy.

2. Exploring Lender Options

A. Beyond Traditional Lenders

Traditional banks and credit unions may be less inclined to lend to those with bad credit, making it essential to explore various lenders. Online lenders and specialized financial institutions often adopt a more flexible approach towards applicants with lower credit scores.

  • Specialized Lenders: Some entities specialize in loans for businesses with bad credit, offering tailored products such as SBA loans and merchant cash advances (MCAs).

B. The Benefits of Diverse Inquiries

Approaching multiple lenders can not only increase your chances of finding a willing partner but also provides a comparative view of the terms and rates available, ensuring you secure the best possible deal.

3. Preparing Your Application

A. Financial Documentation

In lieu of a strong credit score, lenders will scrutinize your business’s financial health through various documents:

  • Bank Statements: Offer a snapshot of your business’s cash flow and financial stability.
  • Profit & Loss Statements: Highlight the company’s operational efficiency and profitability.
  • Balance Sheets: Reflect the company’s assets, liabilities, and equity, offering insight into its financial condition.
  • Income Statements: Show the business’s revenue streams and can help lenders assess its viability and growth potential.

Gathering and organizing these documents before applying can streamline the process and improve your chances of approval.

4. Understanding the Implications of Bad Credit

A. Higher Interest Rates

Bad credit often translates to higher interest rates due to the perceived risk of default. Interest rates for business loans can vary widely, and while they typically start around 7-8%, they can be higher for those with poor credit histories. It’s important to budget for these higher costs when planning your business finances.

5. Finalizing the Loan

A. Accepting a Loan Offer

Once you receive an offer with terms that suit your needs, the lender will guide you through the acceptance process, which includes signing the agreement and setting up a repayment plan.

B. Using the Loan Wisely

Securing the loan is only the beginning. The key to long-term success lies in utilizing the funds effectively for business growth and ensuring timely repayments to potentially improve your credit score over time.

6. Considering Alternatives

A. Merchant Cash Advances (MCA)

For those struggling to secure traditional loans, MCAs offer an alternative based on future sales rather than credit history. This option involves repaying the advance through a portion of your daily credit card sales or automatic bank transfers, making it a viable option for businesses with steady sales but poor credit.

7. Seeking Professional Advice

Partnering with a knowledgeable advisor or financial institution can provide personalized guidance tailored to your business’s unique situation. Organizations like Progressive Business Capital cater to business owners with various credit backgrounds, offering both MCAs and traditional loans.

In Closing…

While bad credit can complicate the process of securing a small business loan, it’s not an insurmountable hurdle. By understanding your credit score, exploring diverse lending options, preparing a strong application, and considering alternative financing methods, you can increase your chances of obtaining the necessary capital to grow your business. Remember, each step you take towards securing a loan, even with bad credit, is a step towards establishing a stronger financial foundation for your business’s future.

No Luck? Think About Alternatives To Traditional Small Business Loans

If you’ve had a lot of trouble getting an SBA loan and other types of small business loans, you may want to look into alternatives, such as a merchant cash advance (MCA).

With an MCA, the lender advances you cash based on your future sales and you repay it by giving them a percentage of your credit card batch deposits or by making a daily, automatic ACH payment (Monday through Friday). Because the advance is secured by your future sales, it’s easy to qualify, even with bad credit.

Want more information? At Progressive Business Capital, we’re here to help. We offer both MCAs and traditional loans, and we work with business owners of all types, even if you have bad credit. Contact us online or give us a call at (800) 508-4532 to get started.

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At Progressive Business Capital, we make it fast and easy to get the cash you need for your small business to continue running smoothly.

Millions Funded Since 2011

*Same-day funding within 24-hours, funding times depend on several factors including delivery of necessary documents for approvals, communication delays, banking hours, holiday hours, transfer delays, and other unexpected events.

All loans issued are at the sole discretion of the lender or funder. Your small business loan agreement or business advance agreement will identify the funder/loan issuer before you sign, and any product or loan amount offered will depend on the underwriting standards of the issuer. ProBizCap is not a direct lender, does not offer loans or cash advances of any kind.

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