Guide to Bad Credit Business Loans
Looking for funding for your business when you have bad credit can be a challenging time. However, there are a number of options and programs for small business owners. Banks and financial institutions are willing to give business owners funding for their business if their company has enough Revenue. Loans based on gross revenue and profits are available for nearly all business types.
It may be that you will not get the funds you were looking for at the bank. It’s become much more difficult for businesses to get lending from the bank. This is the case because loans to businesses are extremely risky for all parties. More than half of all small businesses fail within the first 5 years. Therefore, only businesses who can show stability in their financial statements will get approved. Although this seems to be the case, there have been a number of direct lenders willing to fill the gaps.
There are still minimum credit scores for bad credit business loans
There are options for business owners with bad credit to get funding and programs usually start with a minimum credit of 500. If your credit score is below 500 it is likely you will be turned down for any funding of any kind. However most business owners should have a credit score of above 500. Other than that the minimum revenue for a business to show is roughly about $10,000 per month. Otherwise, lenders don’t feel comfortable giving money to businesses that aren’t making money. That’s why if you are a start-up it is increasingly difficult to get any funding at all. Even if you have good credit, if your time in business is less than 6 months it’s nearly impossible to get funding.
If your business has been around for more than a year and the last 3 to 6 months of bank statements show more than $10,000 in revenue it’s highly likely you will find the funding you were looking for. Typically these loans are short-term. The funds are wired directly into your bank account and can be used for anything for the business. This includes materials, equipment, payroll, and literally anything else. There are no strings attached.
Working with direct lenders can be a much more simple and hassle-free experience then going to the bank. With a one-page application you can be approved in as little as 24 hours. The funds can be in your bank account within two to five business days. However, there are things to consider such as payback structure, cost of funds and funding amount. A normal direct lender will fund roughly 8 to 12% a gross revenue. That means if your business currently makes $1,000,000 a year your business could be approved for about $100,000.
Be careful which lenders you work with
It’s extremely important to be careful which lenders you decide to work with. There are number of lending companies out there looking to take advantage have small business owners desperate for capital and few options. Make sure to read the fine print of any loan offered. Often, lenders will hide additional fees and interest rates for the bottom pages of any contract. Do not let your desperation cloud your judgement. Only take out money you can pay back under terms that are reasonable for your business.
Since lending regulations are much more relaxed for business owners, it’s easy to get into a loan that could potentially ruin your business. Many times brokers will add multiple percentage points on top of typically High interest rates because they know you have no other options. The truth is you do have other options. Make sure to get at least a second opinion. Getting options from multiple lenders will put you in the driver’s seat and you could negotiate better terms. Don’t let aggressive lenders make you feel powerless.
How can I improve my bad credit?
The best way to improve your credit score is to take on debt and pay it back. This shows credit bureaus that you are worthy of more credit. Financial institutions are more than happy to provide the funds for your business if they believe you can pay it back. As you build your credit history for your business more opportunities will present themselves. Is wise to start building your business credit early on. You are a startup then you are likely in need of capital. Beginning with a credit card for the business even if it is prepaid can help build your business credit. This will allow you to not only get approved for working Capital Loans but also equipment financing at the lowest interest rates in the industry.
The purchasing power of a business can be its greatest asset. Businesses who are looking to grow need to purchase equipment, materials make other important purchases on a regular basis. If you are not growing you are dying. There is no room in business for the status quo. As a business owner is important to engage a financial strategy to grow. Our funding managers have experience in growing businesses and we work with small businesses across the country. We offer bad credit business loans to those businesses we believe will be successful. Our passion is investing in businesses and watching them grow.
How to determine the right funding amount
Banks and lenders have been limited in how much they are willing to lend. The reason being that the higher the funding amount the greater the risk. When determining which funding amount is best for your business, you will likely find that your funding amount will be of much lower then your expectation. However, many programs offer a loan renewal halfway through the term. This provides flexibility similar to a line of credit, allowing businesses only to take what is needed and I only pay interest on what is withdraw.
A good rule of thumb, however, is to only take out an amount you can easily pay back regardless of outcome. If your business revenue is capable of paying back a loan without any return on investment then it is likely the loan will not be a burden for your business. Typically, you will not get an approval amount above what your business can handle.
Will a bank provide bad credit business loans?
Absolutely not. There’s no bank in the country that will take on a bad credit business loan. The process of dealing with the bank is usually lengthy and ends with little to no approval. Banks are only approving one out of 10 applications for businesses. Meanwhile, direct lenders backed by banks are approving 8 out of 10 small businesses for the funds they need. You will save a lot of time and hassle by going straight to a direct lender. If you have found this page you are likely in a position where you cannot get money from the bank. You are not alone.
Revenue is more important than credit for business loans
Bad credit business loans are easier to get if you have plenty of Revenue to show for your business. This is more important to financial institutions because loans will be paid back via ACH. This means they will be able to take the money out of your business bank account at will. Additionally, if your company regularly charges credit cards, financial institutions will be much more likely to give you the funding you need. The steady flow of revenue into the business bank account is the most important factor in getting funding for your business. The more deposits you have in your account on a monthly basis the more likely your business will be approved. If your business only has one or two deposits per month, direct lenders will find that very risky. The more revenue sources your business has the more stable the cash flow. This is as an important principle for all business owners to understand.
Once you have been approved for a loan with a financial institution, you’ll be able to build up your business credit. As you pay back the loan your credit will improve. However, this will not have any impact on your personal credit. The next time your business needs funding you’ll get better rates and a higher funding amount. Once you have proven you can pay back the loan financial institutions are much more likely to open the floodgates to your business. Therefore, any place you can start working with a financial institution is a good place to start. Get the process going because what all businesses need to grow is capital.
If you are looking to expand your business now is the time. There’s never been more options available for business owners especially those with bad credit. Access to Capital can be one of the most important factors for businesses succeeding. Bridging the gaps between projects is vital for most businesses to survive. Being able to pay your employees without a hiccup and purchase the materials needed to get the job done is invaluable.
Short term is ideal for bad credit business loans
If you only need the funds for a short amount of time then these loans are for you. Only take out a loan for about 3 to 6 months at a time. Otherwise, your cash flow may not catch up. When planning to use external funding it is critical that you prepare and plan for the loan payback. Failure to plan can put your business in jeopardy. It is not a recommendation that business owners take out funding wildly. There must be a return on investment and there must be a strategy to pay the loan back. If your business is simply using the funds to stay afloat and you have no plans to grow, then perhaps you should not take out a loan.
Never take on more debt than you can manage. Most of the payback terms will be daily, weekly or monthly draws. Therefore, it requires a steady flow of revenue and income into the business. Do not take this advice lightly.
If you would like to apply for a business loan please use the link below. One of our funding managers will reach out to you, help you determine the right funding program for your business, and make sure we have everything we need to get the best funding amount for your business. Get started today and get the funding you need this week.