Can I get a business loan with bad credit?

Getting a business loan with bad credit can be challenging if you are starting a small business in the UK.

The banks and the mainstream lenders focus a lot of the decision-making, in terms of providing you with the needed funds, on your credit score. Your bad credit impacts that greatly.

Simply put, the banks see you as high risk and your small business loan will more than likely be denied.

Fortunately for you, banks and the traditional sources of business loans and funding are not the only ones to consider.

While credit can be repaired over time, you as a small business need the funds now, so always a good idea to consider various government funding options.

With certain government loans or government funding options, credit may play a role, but not always a determining factor like with the mainstream lenders and the banks.

Find out what you may be eligible for in terms of government business loans with the Funding Database.

Before you apply for any funding, be it a business loan, or a government funding program it is important to understand your bad credit.

What does bad credit mean for your business?

If you are considering applying for a business loan in the UK, having a bad credit score may mean that your business’s credit score is simply not high enough to have lenders consider the risks of providing you with a business loan.

A business credit score is a number on a scale that indicates how trustworthy your business is, based on your credit history – which also helps determine how likely you are to pay it back.

The greater the business credit score, the greater your chances will be of being approved for a business loan.

A good credit score for your small business may also help improve the business loan rates offered, provide you higher credit limits (so you can get more funding for your business)…etc

There are a lot of reasons why you as a small business owner may have bad credit; the most common ones include:

• missing your payments, or being late with your credit/loan payments
• exceeding your existing credit limit
• declaring bankruptcy or insolvency
• defaulting on a credit agreement
• have an IVA
• having a history with a failed business with a credit balance

While the top ones are simply missing your payments, it can lead to a big problem and the business loan providers see it as a concern.

What happens if I apply for a business loan with bad credit?

While nobody is stopping you from applying for a business loan while you have bad credit, there are a few things to consider before you do so.

When you apply for any type of credit, be it a business loan, a business credit card, mortgage…etc, the lender who you are applying though will request a credit report from a credit reference agency.

These credit reference agencies, such as Experian, TransUnion and Equifax in the UK will provide the lender with the data they have collected on your personal and business history, and compile a report (this is updated every month and can go as far back as a few years).

Once the lender has this information, they can use this to determine if you are eligible for any business loans, how much and at what terms – or if they should deny you.

That’s not all!.

As a business owner with bad credit, each time you apply for a business loan, your credit score is looked up – which does have an impact on your credit score. This can also bring your credit score further down with each application, or each check – so it is always recommended to only apply to a business loan that you have the chances of being approved.

There are numerous government funding programmes offered by the UK government which may not require a good credit score. Consider those before approaching the traditional lenders with your bad credit score. See available government business loans and funding options for your small business here.

How can I fix my credit score for my business?

Before you consider applying for any business loans, knowing your credit score is important.

It is recommended to check your credit report every quarter – to be on the safe side and follow any increase or decrease. You can do this with the top 3 providers mentioned above.

It is an important step for any business owner considering applying for a business loan to know their credit score and credit limits.

Are there any loans for businesses with bad credit?

As a small business with bad credit, as mentioned, you most likely will have a difficult time obtaining any money from traditional lenders such as banks.

Even if you are approved for a business loan, the loan, based on bad credit may end up having terms that are not helpful, or amounts granted that are less than needed, or interest rates much higher than normal.

Instead, you may look at alternative options to fund your small business.

Depending on your small business, you may be eligible for various funding options provided by the government. Many who do not check your credit score, or use it as a determining factor in providing you the funds. If you are an existing business, you may be able to use your current turnover or valuable assets as collateral, or a way to help secure the business loan.

Government funding as a way to fund your small business with bad credit

The British government has a number of small business funding options. These options range from government grants to government loans, tax breaks, and credits.

While not everyone is eligible for government funding, credit is not always a factor used in determining eligibility, and as a small business with bad credit, you may be able to fly below the radar and get your small business funded.

The various options available via government may include:

Government Business Loans

There are many different business loans provided by the UK government.

Some may come from local governments, others from regional offices or the federal government.

The available business loans may include those that are low interest, no interest, guaranteed loans/secured loans as well as partially repayable loans.

The low interest and no-interest loans are often the more common business loans, as they follow the traditional loan format.

The guaranteed loans, or also called the secured loans are those that provide a business loan on the basis of any business assets you may have as collateral. These assets can be anything such as a commercial property, a vehicle, equipment, technology, or anything of value that the government loan provider can secure the loan against.

The partially repayable loans are those that provide you with a set business loan, but provide you terms that help with the repayment.

For example, A loan for £10,000 may be provided but if repayment is made within the first 6 months of the year, no interest is charged.

In some cases, you may require a guarantor for the business loan, if you have bad credit.

Government Business Grants

Unlike government loans, the grants offered by the government are the most favorable ways of getting your business funded.

Free money, non-repayable grants – simply mean you get funding for your business that you don’t have to pay back. This will give your small business a boost.

To see what government grants you may be eligible for, access the Funding Database here and get started with the search.

Government grants can be used towards numerous things that your small business may need including wage support, hiring and training, equipment purchase, going green..etc

As a small business with bad credit, you still may be eligible for various funding options.

Be sure to speak to a business funding expert to determine the best options without hurting your credit score. Speak to a funding expert here.