There are different requirements you must meet if you want a loan for your company. One of the factors that can stand in the way of a successful loan application is a poor credit score. However, even if many lenders require a medium to high credit score, there are options for business owners with a bad credit score too. Discover what types of loans you can get with a bad credit score and what companies can help you.
What is considered a bad credit score?
A bad credit score is defined based on a score scale or range. The most common scale financial institutions and private lenders use is the FICO credit score scale. FICO scores range between 300 and 850. Generally, a bad credit score is considered one that’s below 650.
How can you get a bad credit loan?
To get a loan for your company even if you have a less than perfect credit score, you need to approach the right lenders. Banks and many non-bank lenders have strict requirements when it comes to credit scores. To avoid wasting time contacting several banks or filling in multiple pre-qualification forms, do your research first.
Only look for lenders that are also willing to help borrowers with poor credit scores. To find them, you can search for reviews and tops that only focus on this type of lenders. Moreover, you should also check the lenders’ websites for eligibility requirements to understand if you can qualify with your credit score. Some companies clearly state they have low minimum credit score requirements. Others are willing to share this information with you over the phone, live chat, or after you fill out a quick form.
The best uses for a bad credit loan
There are many ways in which you can make good use of a bad credit loan. The purpose of getting one is to help your business become more profitable or solve pressing financial problems. Here are some of the best uses for a business loan you’ve managed to receive even with a bad credit score:
- Marketing: investing in this area can help your company gain more visibility and clients, which should translate into more profit.
- Training: the more prepared it is, the better services your staff can offer. Investing money in training your employees can yield great results in the long term.
- Stock: if you run a B2C business where you deal with people directly, you certainly need some products or supplies for your day-to-day activity. Running out of stock is never an option and a loan can help you secure the goods you need. Moreover, with enough cash available, you can also buy more supplies in bulk and save money.
- Technology: this is often a must if you want to streamline your work or keep up with your competitors. Computers, software licenses, machines, and devices are significant purchases. You can use a loan to finance these necessary acquisitions that can make you work better, faster, and achieve more favorable results.
- Debts or taxes: getting a loan to pay due taxes or credits might not be the best scenario. However, if you struggle with debt that continues to grow due to accrued interest and fees, it might be better to solve the issue at once by getting a loan. Afterward, you fully focus on your business and repaying the loan.
How to choose the best bad credit loan company?
There are many things to consider if you want to make sure you choose the right company for your needs. Here is a shortlist:
- Look for companies with less strict eligibility criteria, including a low minimum credit score
- Choose a company that’s available in your state
- Check out the service fees and additional fees to make sure you choose an affordable option
- Pick a company that offers a free initial consultation
- Read customer reviews and only partner with a firm that has good overall feedback and ratings
- Check out the companies’ customer support options, the more they offer, the better; also read what customers have to say about each company’s support service
Bad Credit Loan Types and Solutions
Let’s find out now what loans are available for borrowers with bad credit scores. For each type, we will also recommend one of the best lenders on the market.
Short Term Loans
Short term loans usually have a repayment period of 12 months or less and can help you solve problems that need immediate cash flow. The funds are usually provided fast, as a lump sum, and have higher interest rates compared to other loan types.
One of the best lenders that offer short-term loans is Fundbox. This company provides loans of $1,000 to $150,000 that can be repaid in 12 or 24 weeks and have an interest rate of 4.66% and 8.99% respectively.
Merchant Cash Advances
Merchant cash advances financing is available immediately as a lump sum. It doesn’t involve a set payment amount or a fixed repayment term. The amount is repaid as a percentage of your company’s daily credit and debit card sales.
One of the best merchant cash advance providers is Fora Financial. To apply for this company’s service, you need to be in business for at least 6 months and have a monthly revenue of at least $5,000. You can get between $5,000 and $500,000 within 24 hours.
Invoice factoring is a type of financing that allows you to get paid in advance for your unpaid invoices. The invoices are used as collateral for financing.
The best lender in this category is Credibly. The company offers an advance of 95% of the total account receivables. You can get between $5,000 and $250,000. The application for this service is approved within 24h and funds can become available within one business day.
Business Line of Credit
Line of credit is a type of revolving loan that provides you with funds up to a fixed limit. It works like a credit card; you can borrow money repeatedly after repaying the amount.
Kabbage is one of the best business lines of credit providers. The company doesn’t charge origination or prepayment fees. It offers between $2,000 and $250,000 and helps borrowers with a credit score as low as 560.
Small Business Administration (SBA0 Loans)
SBA loans are backed by the U.S. Small Business Administration. SmartBiz is one of the most popular SBA loan providers. It charges no prepayment fees. The amount it offers ranges between $30,000 and $350,000. Borrowers need to be in business for 2 years to apply. The minimum credit score requirement is 650.
As you’ve seen, there are solutions to get funding for your company even with a bad credit score. As a rule of thumb, to make sure you choose a good lender, always do some prior research and compare several providers before you decide to work with one.