What Is Bad Credit?

Understanding bad credit is important because you’ll need this information to one, improve your credit and two, know what your options for funding your business with bad credit or poor credit. FICO credit scores are what the three credit bureaus use to determine your credit risk. They are: Equifax, TransUnion and Experian. Each FICO Score is based on information the credit bureau keeps on file about you, so depending on what the bureau tracks or knows, your score may differ slightly from each bureau.

FICO credit scores range from 300 to 850. The higher the number the better. Generally, this is the breakdown followed of what your credit score number means:

• Excellent/very good credit score: 700 to 850
• Good credit score: 680 to 699 (Average American score is 682)
• Average/OK credit score: 620 to 679
• Low credit score: 580 to 619
• Poor credit score: 500 to 579
• Bad credit score: 300 to 499

If you’re using this to determine if you qualify for a bad credit business loan, this breakdown isn’t the official determinate of bad credit. Every lender has their own parameters of what they consider to be good, low and bad credit, so check with them and do your research before ruling a lender out.

Fun Fact: FICO stands for Fair Isaac Corporation, the first company to offer a credit-risk model with a score. Bill Fair and Earl Isaac are the founders, hence the Fair Isaac name.

How Do You Check Your Credit Score?

Searching for bad credit business loans likely means you know you have poor credit. If you don’t, you can check your credit score totally free at www.AnnualCreditReport.com. The federal government allows you to check your score once every 12 months for free from all three credit bureaus. If you feel your score is unnecessarily low, you can check your score and see if there was an error on your credit reports.

Your credit card provider should have an option for you to check your credit, most allow you to check once every 30 days. If for some reason you don’t have a credit card or your credit card provider does not provide your credit score, you can check through a non bank option such as credit.com, creditkarma.com, bankrate.com and more.

Keep in mind, personal credit is different from business credit, but both may be used when applying for a business loan for bad credit. Having a higher personal credit score can sometimes be used to help your low business credit score. To check your business credit score, you will likely have to pay. The top options are CreditSignal, Nav, Experian and Dun & Bradstreet.

Your business credit score is public, so clients and lenders can view it (for a fee) when making financial decisions about your company.

How Do You Get Bad Credit?

The causes of bad business credit can be similar to bad personal credit. Missed credit card payments, rent payments, excessive loan amounts and other times there was a lack of funds to pay bills (or simply forgetfulness) will all lower credit scores.

New businesses often have low credit scores for two reasons. One, it’s hard to have a good credit score when you have no credit history. You haven’t done anything wrong, but you haven’t done anything good either. Since lenders don’t know where you fall, the not knowing is considered a risk. The other reason is that launching a business comes with hefty costs. The initial start up phase will need equipment, inventory and real estate purchase plus other costs depending on the industry. From the beginning, you’ve taken on debt and are working your way out of it from the day you open your doors.

Be aware, if you are or have been shopping around for loans, your credit might be lowered. Most companies do a “soft pull” to initially analyze your business, while others do a “hard pull” which does affect your credit score. Why does pulling credit affect your credit score? Because when you have multiple inquiries about your standing it shows that you are accessing additional credit, which could come across as a risk that you’re struggling financially and need extra money.

Why can’t I get a business loan if I have bad credit?

You might know how your business could safely use funding, but the underwriter analyzing your business might not see the same picture that you do. A credit score is used to determine credit risk. While there are cases where low credit is attached to a healthy business, there are also cases where bad credit reflects an overleveraged company that has taken on more debt than it can chew.

Receiving business loans with bad credit will be the hardest to achieve. Banks strictly look at credit scores, especially since they are FDIC-insured by the federal government. While banks offer the lowest interest rates, you might have to seek a financing option that has higher rates but can approve you for the funding you need.

You might be able to explain why your credit score is low if the business funder allows it. However, the typical process is that your business is underwritten for how it looks on paper alone, and for that you’ll want to boost your credit score as much as possible before applying for bad credit business loans.

Where To Get Bad Credit Business Loans

While bank loans and Small Business Administration loans are pretty much a no-go for getting business loans with bad credit. There are still options, many more than there used to be.

You can begin your search either by company or by product. Companies that will fund low credit scores are:

New York Tribeca Group – New York Tribeca Group is a merchant cash advance, which is the purchasing of future receivables. A business agrees sells it’s incoming accounts receivables and then pays back the funder over a short term of two to eighteen months. Credit scores as low as 500 can qualify for up to $1 million in financing. There are many MCA providers out there, who have different funding requirements if you don’t qualify for New York Tribeca Group funding.

Fundbox – Offering invoice financing and lines of credit, Fundbox can help those who need something structured differently than a traditional loan. The company says there is no minimum personal credit score and you must have been in business at least three months with over $50,000 in annual revenue. If you meet these requirements, you can get $1,000 to $100,000 at rates varying from 10.1% to 79.8%.

Kabbage – Kabbage is a popular name in the industry because they so easily integrate with bookkeeping software, a must have if you seek funding from them. Kabbage will fund poor credit of 560+ personal credit score and requires a minimum of one year and business and minimum $50,000 in annual revenue. Funding amounts range from $2,000 to $250,000 with factor rates of 24% to 99%.

BlueVine – iMost commonly known for their invoice factoring, BlueVine is a good option for business owners who need funding to cover outstanding invoices they will eventually be paid. Since invoice financing uses incoming payments, there is less risk for the lender and low credit scores of 530 and higher will be accepted. Other requirements are $100,000 in annual revenue and at least 3 months in business in order to receive $20,000 to $5 million with rates of 15% to 68%.

QuarterSpot – If you need money fast to get out of a cash flow shortage then QuarterSpot can help with their fast funding options. You’ll need a 550+ personal credit score plus 2 or more years in business and at least $200,000 in annual revenue. If you have all this, you can apply for $5,000 to $250,000 in funding at rates of 30% to 70%.

Another way to find bad credit business loans is to search for a program that fits your business needs.

Short-term loans for bad credit – Short-term loans are usually 2 – 18 months terms and have daily or weekly ACH payments, occasionally monthly. On the down side, they are more expensive with higher APRs because fast cash is handy but expensive. Payments more frequent than monthly loan payments stretched out offer five to ten years might cut into cash flow, or might free up cash flow sooner, it all depends on what you need.

Lines of credit for bad credit – Slowly building your credit with a line of credit is another financing option. A line of credit is more than a credit card but less than a loan. You only pay for what you use which can lower interest rates, just be careful you don’t spend more than you can pay off, especially if that’s what lowered your credit score in the first place.

Invoice financing for bad credit – Invoice financing uses your incoming invoices as a type of collateral to provide funding. If you don’t pay back the money, the lender can take over your invoices, leaving them with very little risk of loss if you default. Some invoice financing businesses won’t even check credit score because they only provide enough money for what you have waiting in invoices.

Equipment financing for bad credit – Equipment financing is another way to collateralize a loan. You take a sum of money to buy equipment, but the equipment is not fully yours until you pay back the loan used to purchase the equipment. Since physical equipment is collateral but not the most liquid of assets, lenders will still prefer you have a 600+ credit score.

Merchant cash advances for bad credit – A merchant cash advance will advance you a certain amount of money depending on your cash flow and then take daily or weekly payments. MCA funding is accessible for low credit and on short notice, but it comes at a high cost. Be prepared to pay high rates and make sure lack of profit isn’t what got you there in the first place. On the positive side, repayment amounts are a percentage of sales, so when sales are high you pay back more and when sales are low you pay back less.

Business credit cards for bad credit – If your business needs a smaller amount of funding or is looking for a way to build credit up, opening a business credit card can help provide some additional cash flow. Low credit will likely mean you have high rates and a low credit limit, but it’s a way to start somewhere and start rebuilding your credit.

How to apply for a business loan with bad credit

Now that you’ve decided on the financing route you want to pursue here’s what you’ll need to apply and prepare internally.

Lenders and alternative funders alike will look at a business’s:

• Credit score
• Annual revenue
• Existing debts
• Cash flow steadiness
• Business history
• Industry
• Available collateral
• Invoices
• And other factors

If your credit score isn’t strong, look at the list above. Where do you shine? Are there any financing options best suited for your business’s strengths? If your business has bad credit, play up its strengths, apply when your business is at its peak and performing well and keep working to improve your credit score.

What to do if you’re denied a business loan because of bad credit

If you’ve already been denied a business loan because of bad credit, it isn’t the end of the road for your financing journey. Bad credit does not have to follow you around for the rest of your life. Bad credit business loans are common because bad credit is so common. Plenty of business owners have raised their business credit score, all it takes is smart spending, smart saving, and industry knowledge. If you have trouble making financial decisions, getting a financial advisor or speaking with your business accountant can help you map out a financial plan.

The first step you’ll want to take in repairing your bad credit. Most negative marks on your credit report will stop appearing in your credit history after seven years, although some may take longer. Once you start getting approved for loans, make sure you pay them back on time and in full and your credit score will rise. It’s hard to dig yourself out once you’re down, but a great way to fix your score is to acquire debt and pay it off to show you can pay off debt and are less of a risk to lend to. You might not be able to do this with a loan, but starting small such as credit cards, rent payments, and other bills can contribute to your score.