Bad credit business loans

Bad credit can be a tough challenge for your business. For starters, a poor credit score can result in lenders rejecting your loan application, which can lessen your chance of gaining funding to enable growth and manage cash flow. 

Your options for financing can be reduced, and you may be asked to pay higher interest rates than SMEs with good credit – this can eat into your profits and leave you with less money to grow. The consequences go beyond your relationship with lenders – bad credit can impact your ability to take out a rental lease, get a commercial premises with a company mortgage, and even lease a company vehicle, all of which can impact your ability to deliver services to your customers and manage your team effectively. 

It’s a common misconception that businesses only have bad credit because they misuse funds. While it is, of course, possible to get a bad credit score by taking out too much debt, not meeting your repayment obligations, or defaulting on a loan, it’s also possible to be labelled as having bad credit due to having a limited history with credit. 

If you’re running a startup or small business, it’s possible you haven’t had many recurring bills to pay, or that you haven’t taken out any debt in the past. This may have left you with limited payment history, which can result in a bad credit score. 

If, like many business owners, you only recently discovered that your business has a credit score and have been surprised by the results upon searching for your own score, try not to fret. It is possible to grow a credit score with time and consistency.

Here are some steps you can take to improve your score and gain better loan eligibility. 

• Check you don’t have any outstanding debts you may have forgotten about. If you do find any, clear them as soon as possible.  

• Confirm you haven’t been the unsuspecting victim of fraud. 

• Make a note of your current score. This is so you can return at a later date and confirm your efforts are working. 

• Ensure you are paying off your bills on time. 

• Don’t use more than 30% of all the credit you’re extended. That means if you have a company credit card that gives you access to £10,000, try not to use more than £3,000 at any given time.

• Consider taking out a bad credit business loan as a way to build up a history of credit. Only do this if you are absolutely positive you’re able to meet your recurring repayment obligations. Try to keep the loan amount low to start with, to give you and your business time to adjust. 

Keep an eye on your score over the coming months, both to ensure your efforts are working, and to confirm no new bills have been missed. You can do this using Tide’s Credit Score Insights.

We help business owners and sole traders gain access to up to £20M in funding. We’ve helped connect more than 18,000 businesses to over £850 million in finance. Our network of lenders is made up of over 120 of the most established lenders in the UK, which means we can usually search for an eligible lender with greater speed and efficiency than might be possible through an individual search online. 

Most importantly, while a full application would further impact your score, we’re able to check if you’re eligible for funding without impacting your credit score. This means you could find out what your options are without any further damage. 

Apply here to find out if you’re eligible.

The loan application process can be fairly similar to what you might expect to find for businesses with good credit, but with the potential addition of a few extra steps. 

For starters, you may need to search for longer to find a lender willing to extend funding. A business finance broker, like Funding Options by Tide, could help here by searching for you and checking if you’re eligible across a range of lenders without impacting your score during their initial eligibility check. However, this type of service always depends on the broker, and it’s important to check if the search will impact your score or not before you begin. 

Beyond the search for lenders, you may also need to put forward more documentation. For instance, if you’re trying to demonstrate your ability to repay a loan, you could be asked to share bank statements, customer contracts, pending invoices, or a business plan.

Maybe, it depends on the lender and the exact circumstances of your business. You could be granted an unsecured business loan by putting forward a personal guarantee, particularly if you as an individual have a good track record with credit. 

Be aware that secured business loans don’t always require you putting up personal collateral, such as your house, to gain access. Let’s say you need a new piece of equipment to be able to conduct your business effectively. Some types of asset finance (which is a type of secured loan) could enable you to spread the cost of the purchase, granting you access to the tool at a reduced initial cost.

Maybe, it depends on whether or not the lender is willing to extend credit. The only real way to know is to check, which you can do here. You can strengthen your application by paying off any outstanding debts, ensuring you’re paying all your bills on time, and being open to putting up a personal guarantee. 

Be aware that it is generally easier to pay off long-term loans, as there is less immediate pressure. To illustrate, let’s say you’ve agreed to repay a certain amount in the coming months, and a business deal falls through or the market shifts, this could turn into another hit to your score if you need to renegotiate repayment terms after the payment deadline has passed.

It could be, if you’re looking for finance and don’t want to give up equity, you could qualify for a cash advance. A business cash advance is an advance on future earnings. You get a lump sum upfront, and then repay the advance, along with any fees, as a percentage of card transaction earnings.

There are several drawbacks and risks to bad credit business loans, including the following. 

Higher interest rates 

Bad credit business loans often come with higher interest rates as lenders are more cautious about potentially losing their investment. They can also come with higher fees, or additional fees that may not be present for businesses with good credit scores. 

More stringent terms 

You may find bad credit business loans can come with more stringent terms, including the need to put collateral up as security for the loan, or you could be asked to put forward a personal guarantee – which means you remain personally liable for the loan, even if your business closes down. 

Smaller loan amounts 

Bad credit business loans tend to come with reduced loan amounts. This isn’t necessarily a bad thing, though, as it gives you the opportunity to adjust to working with credit limits over a longer period of time. Some lenders start businesses with poor credit off with smaller limits, and then offer more funding later down the line once the borrower has proven they can repay regularly and consistently.

Different lenders have varying criteria for what they consider a bad loan. As a general benchmark, a credit score under 40 out of 100, or below 550 out of 850 could make it more difficult to gain funding.

Possibly. Lenders may look at either your personal credit score, the business’ credit score, or both. Interest rates could be higher if your score is low.

It’s very likely that applying for multiple loans can hurt your credit score further. We recommend speaking either to a single lender or using a broker, like Funding Options by Tide, to gather a wide pool of possible quotes.

Not necessarily, it depends on the loan type. Secured loans do need collateral, whereas a different type of funding, like a merchant cash advance, looks at proof of consistent sales instead.

Pay off any remaining debts as soon as possible and ensure you’re not missing any upcoming payments. See if you can improve your cash flow as well, and consider working with a broker, as they may have access to a wider range of lenders, some of whom may cater directly to you.

That depends a lot on the type of loan. Something like a bridging loan, which is a type of secured funding, can be much quicker to gain access to than something like a commercial mortgage, which is a long-term loan. The lender should be able to give you a rough estimate of their application timelines once you speak to them.

Some lenders do have a minimum revenue threshold, but there are financing options for businesses of all shapes and sizes, including younger businesses with lower revenue amounts.

If you’re running a startup with no credit history, it’s possible you may be asked to put up a personal guarantee, take out a secured loan, or use a revenue based form of funding, like invoice finance or a merchant cash advance.

Yes it’s highly likely paying off your loan will help improve your credit score, although there may be a delayed impact. Credit scores help lenders determine how likely you are to repay a loan, so paying off a loan and keeping up with your repayment schedule demonstrates to future lenders that you’re responsible with debt.