Can I get a business loan with bad credit?

It’s no secret that a bad credit score will make it more difficult to secure a business loan from mainstream lenders, such as banks. Good credit scores help lenders determine whether the business will be able to pay its bills on time and, therefore, affects their decision. This leaves many business owners wondering, ‘can I get a business loan with bad credit?’. However, all hope is not lost. In fact, there are certain steps you can take to boost your credit score and secure financial backing.

In this guide, we’ll cover:

• What types of funding are available?
• How can I build credit?
• How Countingup can help you manage your finances

As we mentioned earlier, it may be trickier to secure a loan with a traditional bank and, even if a lender does grant you credit, you could be paying back a lot more in fees and interest. In this case, it can be tempting to take a ‘scattergun’ approach to applying for loans in the hope that one of the banks will approve your request. However, this is best avoided as it may harm your credit score further. 

Instead, it may good idea to seek out alternative funding, such as:

1. Bad credit business loans

There are several lenders out there who now offer this type of loan; however, you may find that these also have high interest rates and fees attached. Shopping around for this loan type is essential so that you can factor in all the costs and find the one that’s best for your business.

2. Guarantor loans

If you have a friend or family member that would be happy to take responsibility for your loan in the event that you can’t repay it, you may be able to borrow money from traditional lenders. However, the amount you can borrow is likely to vary so, again, take some time to compare them before applying.

3. Secured loans

Does your business already own commercial property or equipment? If so, you may be able to get a business loan secured against these assets. Because this loan type presents a lower risk to the lender, there’s also a good chance that it will be cheaper for you.

4. Equity crowdfunding

Equity crowdfunding has increased in popularity in recent years, with more small businesses and start-ups using this method to secure financial backing. It seems like this trend isn’t stopping any time soon, with the crowdfunding market projected to grow to $300bn by 2030.

5. Government grants

This page on the UK Government website offers advice on finance and support that’s available to your business. Government grants help new and small businesses without expecting repayment, so your credit score won’t be factored in as part of your application process.

6. Business cash advances

Some lenders may offer financial backing on the expectation that their repayments will come from any future sales your business makes. Since you will only pay back an agreed percentage of your earnings, repayments should always sync up with your cash-flow and, therefore, be more manageable.

Fortunately, bad credit scores can be fixed. Although there’s no guaranteed way to do this, there are a number of steps you can take to begin improving your score, which we’ve outlined below:

1. Check your business credit report regularly

There are several credit reporting companies that you can use to check your credit score. This is essential if you want to stay on top of your finances because you’ll be able to see what you’re working with, what is negatively impacting your credit score and what you could do to improve it.

2. Pay your bills on time

This is one of the simpler ways to boost your score and is one of the most important. If you’re not paying your bills back on time, any other efforts you make to improve your credit score will be cancelled out as you will still be considered a debt risk.

3. Keep your credit utilisation ratio low

This sounds more complicated than it actually is. Your credit utilisation ratio refers to the percentage of credit available to you, versus what you’re using. So say, for example, you have a credit card with a limit of £1,000 and you spend £500 on this card throughout the month, your credit utilisation would be 50%. The lower you keep this score, the better, as this will show lenders that you responsibly spend any money you’ve been lent.  

4. Dispute any errors on your file

It’s vital to ensure that the information being reported about your company is correct and up-to-date. So, if you see something on your account that you believe shouldn’t be there, it’s worth raising a dispute. You may find that you can get this information removed, which will improve your overall credit score as a result. 

5. Add any positive payment experiences to your file

You may be working with several vendors or suppliers who aren’t sharing payment data with credit reporting agencies and so these positive transactions won’t be recorded on your profile. However, this is something you can add manually through a credit reporting agency. If you want to improve your credit score, it’s crucial that you add as many of these positive payment experiences to your file as you can. 

The best way to stay on top of your business finances is to keep all your data in one place. Countingup is the business current account and accounting software in one single app.

With all your financial data in one place, it automates time consuming bookkeeping admin so that you can focus on running your business. With instant invoicing, automatic expense categorisation and cash flow insights, you can confidently keep on top of your business finances everyday. Find out more here.