The first thing that typically comes to mind for most aspiring entrepreneurs and small business owners is the idea to visit their local bank and apply for a business loan. However, most traditional lenders want reliable borrowers. They will require you to prove that you repay your debts in full and on time in order to secure the funds. Your credit history will be used as a measure of your willingness to meet your financial obligations based on your past credit performance. For business owners with less than stellar credit history, the chances of securing a loan from traditional lenders are notoriously slim. Regardless of how healthy or successful your business, banks will reject your application if you have a bad credit score.

Obstacles for Bad Credit Business Owners

When applying for a merchant financing to start a small business or get some extra cash to supplement funding, your personal credit history is one of the main factors that are taken into consideration. A good personal credit, therefore, cannot be underestimated. While it seems counter-intuitive to focus on your personal credit score when addressing business financing, a less than perfect credit score has been responsible for standing in the way of many business loan applications. When you apply for a business loan, lenders want to know how long you’ve borrowed money and how many kinds of credit you have. Your credit score gives lenders an easy way to evaluate your worthiness as a borrower.

Moreover, because your business is still young, lenders assume that you’ll handle your business’s finances like you do your own personal finances. As such, they examine your business management experience, equity investment in the business, and collateral. These aspects also play a key role in determining if you will be approved for a loan. Therefore, if you’ve got bad credit or spotty business experience, you may not qualify for larger loan products, certain repayment schedule, or low-interest rates from a bank or other conventional lending institutions. Lenders don’t want to the risk that you may default on the loan.

How to Know if You Have a Bad Personal Credit Score

There’s really no one definition of bad credit, especially when it concerns business financing. However, a bad credit score can be a combination of missed or late payments, default listings, or multiple credit inquiries. If you haven’t obtained your free annual credit report, you can get it at The general credit score scale is as follows:

  • Excellent: 720-850
  • Good: 690-719
  • Fair: 630-689
  • Bad: 300-629

Some people have credit scores below 300, but basically, anything below 620 can become a roadblock if you’re looking for business financing. Though FICO doesn’t share everything that’s taken into account when determining a credit score, factors likely include the amount of time you’ve held any credit accounts, your payment history, your current debt, and more.

It’s important to know that there are three major credit bureaus –Equifax, Experian, and Transunion - which report their own credit scores for individuals and make it easy for lenders to access a person’s credit history. As such, you can’t quite predict which score a potential lender will use.

Now that you know the bad side of being a bad credit business owner, it’s great to know that all is not lost. There are many alternative options and lenders willing to offer loans to business owners with a less-than-perfect credit score. This means that even with bad credit, nothing should hold you back from obtaining the funds you need to push forward your business.

Tips for Bad Credit Business Owners

1) Know What Lenders Are Looking For

There are factors that the average lender will take into account when reviewing your application. It’s important to understand that every lender places weight on certain factors and has their own slightly different approval process. However, there are criteria used by all lenders that you should know and be prepared for before applying in order to improve your chances of getting approved. This is not always the case, but it’s useful to have an idea of what lenders look for when reviewing applications.

Such criteria include revenue and cash flow. Basically, when it comes to revenue, lenders want to see that it is growing consistently because your revenue is what you’ll use to repay the loan. As such, lenders need to see clear signs of growth. Another thing is cash flow, which needs to be high and well managed. Lenders will want to see that you have cash flow and are smart with it. By having these factors in place, you may be able to improve your chances of getting approved for a business when you have bad credit.

2) Consider Alternative Lenders

Big banks usually approve loan applications for established businesses. Also, since only one in four applications is approved, an alternative lender, such as Merchant Cash Advance can be a good option when you have bad credit. Even those approved applications come with more collateral and a higher interest rate. It makes sense to check the interest rate you’ll be charged for and compare with alternative loan options to see if you’re offered better terms. You have a better chance of approval if your credit score is above 600. However, alternative lenders are typically interested in your current debt, annual revenue, and cash flow and may still approve merchants with a score of 500. Other items that might be considered include trend lines in credit, active bank accounts, monthly bank deposits, and your business’ profit.

When applying for an alternative loan, be mindful of your timing. For instance, you may want to do all applications at once instead of spacing them out. Applying for different loans at different times can more likely hurt your credit further. As you work to improve your credit score, the savvy approach is to closely compare the maximum amount and interest rates to fund your business. Most alternative lenders report to credit agencies, which in return improves your credit and opens more doors as your business expands.

3) Find Lenders with a Lower Credit Score Minimum

If you’re looking for business financing, but your credit score isn’t that impressive, you may want to conduct research in order to find lenders who provide loans for bad credit business owners. Alternative lenders are usually more lenient than traditional lenders, but if your score is under 500, many may be apprehensive about working with you. Research becomes highly paramount if your score is under 500. Don’t waste your time making applications to lenders if you don’t meet their minimum credit score requirements. Even with a score in the 500, there are times when financial firms, like Wide Merchant Group may still approve you, depending on the type of accounts on your credit report.  

4) Consider Merchant Cash Advance

Also known as a business cash advance, merchant financing allows businesses that accept credit cards to get an advance on credit card sales. It is a type of financing but not the same as a business loan for bad credit. With merchant financing, you receive lump sum financing, and then the provider will be receiving a percentage of the money that regularly flows into your company. It’s basically an advance based on future credit card sales or revenues. So, if you have consistent credit card sales but your business’s credit score is below average, you could still qualify for this product. Merchant Cash Advance have evolved over time to allow small, fixed daily, weekly, and monthly debits to be withdrawal from your bank account for convenience, and is often one the preferred methods of repayments preferred by most merchants.

Merchant Cash Advance has the same advantages as working capital loans but is basically designed for borrowers who conduct handle most of their transactions through a payment card or credit card, such as auto repair shops, restaurants, etc. During the application, the lender will be seeking a large number of deposits in small amounts. So your bad credit score could be ignored if this requirement is met.

While this is one of the easiest business funding options for bad credit business owners, paying back the amount owed will not improve your credit score. Our bad personal credit will remain unless you’re paying the bills affecting your score.  However, your payments will increase your payment history with the lender. This will give you the power to obtain additional funds before your balance is fully paid off so that you can fund last-minute projects such as ordering new inventory, replacing old equipement, and even hiring season help.

6) Apply for Lower Amounts

All lenders, including those who deal with bad or no credit, will assess an application based on the risk it represents. So, lenders are more likely to be stringent when it comes to assessing your situation if you’re looking to borrow a higher amount. Before you make any application, it’s come up with an accurate and honest budget, accounting for exactly what you need and not a dime more. This may help you reduce the amount you apply for, which could result in lenders being more lenient when it comes to taking into account other supporting documents, such as your company bank accounts.

7) Work on Improving Your Credit Score for Future Borrowings

Bad credit is very much fixable. If you’re not able to secure a business loan because of your credit, then you can make sure that’s only temporary and never happens again. This will require you to work on building up your credit and getting it back on track. Both your personal and business credit score factor in things such as whether your business is in debt or makes late payments. Keep in mind that as a business owner, you’re your company’s credit representative. There are so many positive things you can do to improve your credit. This will make it easier for you to borrow larger amounts of funding and at better interests, plus you could refinance any long term bad credit loan to help you secure beneficial repayments.

Determine what regular payments you can be able to afford and set them up you’re your collection agencies. Make sure that you pay all bills early or on time, and use your credit limit wisely. Prompt payments help you form a good relationship with vendors, which consequently allows you to gain more favorable payment terms. Paying bills on time is critical when it comes to rehabilitating your credit history because credit bureaus decide your score based on how long it takes you to pay the debt.

8) Expect to Receive a Higher Rate

When applying for a business loan from a lender, you’ll need to take into account the rate they are providing you with. Your interest rate may be higher if you have a less-than-perfect credit score. This could be the case because you’ll likely be assessed as a higher risk customer. So, before accepting the offer, consider whether your business will be in a position to pay back the amount in full and on time.

Are Bad Credit Business Loans Worth It?

It’s natural to be worried about the risks associated with bad credit business loans. Some business owners need financing as soon as possible, or the lack of it could mean taking drastic measures or going to the extent of closing the business. The takeaway point here is that most business loans, such as merchant cash advance, will help you keep your business afloat and recover your credit if you make on-time payments and keep in good standing. However, you should also be careful since such loan options can sink your business into debt and worsen the matter if you’re unable to make on-time payments. If you’re a bad credit business owner but don’t need immediate financing, the risks may appear too high. So, be smart about the kind of debt you take on and work on recovering your credit.

Finding Bad Credit Business Loan Near Me

Whether you’ve recently found yourself overwhelmed by debt or you have a chequered credit history, it doesn’t mean that you can’t get funds to keep your company thriving. If your bank or other conventional lenders say no, explore other solutions that can prove to be rewarding and profitable. At the Wide Merchant Group, we like to listen to your story to ensure you get the financing your business needs to spur and maintain growth. We don’t just look at your credit score when making an approval decision. We also consider a wide range of other factors, including profit and loss statements, corporate tax returns, personal credit reports, and other relevant documents. We believe that with the right support, you can accomplish great things. This is why we’re proud to help hardworking business owners with less-than-stellar credit to accomplish their goals.

Contact us today to learn more about how our merchant financing program can help you.