Published By Janet Gershen-Siegel at February 7, 2018
Do you know how to get business loans, even with bad credit? We do, and we lay out the specifics here. We know what you’ll need to do to get the funding you need.
Poor credit does not have to be a dead weight around your business’s metaphorical neck. That being said, it does make it more challenging to obtain a small business loan. For a brand-new small business in particular, your small business credit will be substandard as a matter of course. This is because you just will not have the type of history and seasoning which can make your commercial credit score go up (and, subsequently, make lending institutions want to loan your small business money).
Consequently, lenders are not going to be too passionate about offering your company a business loan. This is because they genuinely have no idea if your company will have the ability to pay back the loan. But you are still, not surprisingly considering ways to underwrite a company with poor credit.
Due to this, banks will typically take out a UCC blanket lien in the event that they do give your small business a loan. A UCC blanket lien is a note which goes on your credit report. It says that the loan provider has an interest in all your small business’s assets until you settle the loan completely. Therefore, there might be unfortunate consequences if you have to default.
Additionally, most of these loans will also demand personal guarantees.
However, if a loan does not require a personal guarantee, then your small business is often going to be looking into unsecured business loans, and those are coupled with excessive interest rates. These kind of business loans are either short-term (so you need to pay them back swiftly), receivables financing (where you are able to get a loan based upon business you count on to be coming in because you have outstanding invoices which your own clients have not paid out to you yet), or vendor cash advances. These all come with lending rates which are often 40% or greater.
The main advantage is that you do not need to put up a personal guarantee or accept a UCC blanket lien. If you wind up defaulting on the loan, then your house and any other personal possessions will not be seized, and neither will your inventory. Nevertheless, this also indicates that you normally need to have strong revenue or a substantial amount of time in business. Generally, your individual credit must be fair or better (and that’s even with no a personal guarantee requirement).
Interest, interest, interest! According to Nerd Wallet, Kabbage can provide an unsecured business loan – yet the APR can possibly be up to 99%! If you think that’s usury, think again. In Ohio, the usury laws don’t apply to unsecured loans.
Another pitfall (although not everybody will view it in that way) is that unsecured business loans often require that your small business has been in operation for at minimum six months, or that you have no personal bankruptcies, or your business has to demonstrate a minimum yearly profit amount– and that means opening your books to your lender. If all of these criteria have already been met by you, then you possibly won’t see this as a genuine disadvantage. However, if your business is brand new, and you do not yet have regular customers and profits, and you have had personal bankruptcy problems, then you could be shut out of your few remaining options.
For all these alternatives, you will typically have a more desirable rate of interest (and you will most likely have more choices, so you can shop around and compare plans) if your credit score is better than poor. If your company can wait till your credit– either business credit or personal credit or both– grows, then your choices will significantly improve, too. In the meantime, getting business loans is very possible.