If you’re a small business owner, having bad credit can feel like a prison.
You need financing to pump much-needed cash into your business for growth and expansion…
…but not having good enough credit to obtain financing from a bank or traditional lender means you’re stuck in place.
Fortunately, alternative lending has exploded over the past decade and now offers small business owners with bad credit several great options for obtaining the funds their business needs, whether to pick themselves back up after a slow season or to expand into new horizons.
Business loans with bad credit: Your options
So, what are your options?
It might be a little hard to believe that there really are options available to small business owners with bad credit, but it’s true.
In fact, there are several:
- Unsecured business loans: An unsecured business loan is typically based on cash flow, gross annual sales, and your business’ credit score (typically scores ranging 540+), up to as much as $2,000,000.00 and does not require collateral.
- Business line of credit: A revolving credit balance you can use as the need arises (similar to a credit card).
- Split funding: Also known as a merchant cash advance, split funding deducts a percentage of your credit card sales each business day to repay the loan, making them perfect for businesses whose cash flow fluctuates due to heavy and light seasons (such as Christmas).
- Term loans: A quick chunk of cash typically used for a specific purpose such as to buy materials, new equipment, or hire new personnel before a busy season.
Now that you know some of your options, let’s take a look at everything you’ll need to get a small business loan even with bad credit.
What do lenders look for?
The first and perhaps most important thing to know is what lenders are looking for when they receive an application.
If you know what they’re looking for in advance, you can position yourself to be much more likely to be approved for a business loan even if you have bad credit.
Here are a few of the most important things that lenders are looking for:
1. Debt is low and under control
First, lenders want to see that your debt is not only low but under control. Are you on time or do you have late payments? Also, is there collateral on any loans involved? These are all important factors to look out for when preparing to apply for a business loan with bad credit.
2. Revenue is high and growing
Revenue helps lenders forecast your ability to pay back a loan. In a nutshell, it’s best if your revenue is not only high but also on an upward trajectory. If you’re currently growing, you’ll be in good shape to lenders (on paper, at least).
In addition, revenue helps decide what size of loan you’re approved for, so it has more than one purpose.
3. Cash flow is abundant and well managed
Cash flow is another very important metric because businesses want to see not only how you manage your money, whether you overspend and pay late or never stretch beyond your limits and pay on time, but also how much cash savings you have in case something goes wrong.
The reality is, no one ones what’s going to happen tomorrow. For that reason, lenders want to see that you have a nest egg you can use to continue paying off your loan in case business suddenly takes a dip.
A note on credit
While great credit isn’t necessary, it still helps to do everything you can make your credit look as good as it can.
If you have any tax liens, foreclosures, or bankruptcies on your credit, do whatever you can to take care of them and get them off your personal credit. This will go a long way in getting approved for a loan.
Clearly, not every business can fulfill each of the above points we just mentioned perfectly. In fact, very few can.
Simply use the above information as a marker for placing yourself in a position to have the highest chance of being accepted for a loan.
What are the minimum requirements to qualify for a small business loan with bad credit?
In addition to there being certain things that lenders look for when they review an application, there are also typically minimum requirements to even be considered for a loan in the first place.
They tend to be pretty easy qualifications to meet, however, they’re nonetheless required before your application can even be accepted.
Each type of financing is different, but here are what the basic requirements tend to be for many bad credit business loans:
- Be in business for at least X months or years (typically, somewhere between 6 months to 2 years)
- Have X amount of monthly gross revenue (typically $10,000 or more)
- Must be in good standing (In other words, can’t currently be defaulted on a loan with another lender, etc.)
On top of those basic qualifications, you’ll also need a few documents to verify and proof certain information.
What documents do I need?
Every lender and loan product is different. However, the documents needed to apply for each tend to be pretty similar. And, regardless, it’s a good idea to have this stuff in order anyway.
Here are some of the documents that may be required by lenders for you to complete your application and get approved:
- Business licenses
- Proof of ownership
- Property lease agreement
- Personal and business tax returns
- Voided check
- Drivers license
- Bank statements
- Profit & loss statement
- Debt schedule
Get a small business loan even with bad credit
Obtaining a small business loan with bad credit has never been easier.
And it’s not just possible, you have several great options to choose from in unsecured business loans, business lines of credit, term loans, and merchant cash advances (AKA split funding).
You don’t want bad credit to hold you back from getting the funds your business needs to grow. Now, it doesn’t have to.