6 Ways to Get a Business Loan with Bad Credit

Business owners know what it’s like to run up against an unexpected brick wall. Business credit can be a different experience from personal credit. While you may get that gas card without much issue even with maxed out bigger cards, getting a bank loan for your struggling business can be a different story, especially for higher amounts. This article will look at the issues presented when trying to get a business loan with bad credit (or insufficient credit history) and the ways around them.

The Most Common Reasons Businesses Take Out Loans

Your business comes across new hurdles over time:

  • growing pains
  • new unexpected costs
  • hiring new employees
  • new difficulties that come from exploring new territory or markets
  • the need to expand operations
  • the need to extend credit so that you can take on more customers

All of these problems can impact your ability as a business to meet your own obligations in a timely way. And that can result in bad credit history for your business, in addition to any personal credit issues in your recent past. We all know that’s bad. But is it hopeless? Not really.

Bad Credit is Not the End of Your Business Growth Potential

It is, rather, the beginning of a new learning curve that will enhance your business in the long run. Just like the Roman Empire’s surprise at the new challenges posed by the merchant empire of Carthage, the resulting Punic Wars resulted in a vastly improved Roman war machine. The Romains created a navy and eventually learned the rules of naval battle the hard way, via repeated miserable failures. In the same way, your business only gets stronger by enduring challenges. Weathering bad credit is one of the great growth periods for any business internally, if not externally, and the rewards can be substantial.

 

The Workarounds to Getting a Loan with Bad Credit

As you may know, even if your business has acceptable credit, even your personal credit can become the unbalancing element in the equation. So how does one resolve bad credit? Well, you don’t. You work around it with alternative loan requirements that lenders will consider in lieu of a good credit history.

Bad Credit Workarounds

1) Collateral

Putting up property, equipment or other business assets as insurance for the lender against what you are borrowing.

2) Factoring

Liquidating your unpaid invoices into a revolving line of credit or towards another loan.

3) Restructuring

This is when a sole owner decides to share the risk and profits of the business according to an agreed-upon percentage per partner, or when larger corporations go public as an IPO.

4) Refinancing

This can be the transfer of a balance to another creditor at a lower interest rate, either of your business debts or your personal debts, in order to create a better borrowing profile for your business.

5) Proof of new business potential

Imagine how your lender would react if they could see proof that your business was just about to turn the corner—they’d want to invest in that potential if possible.

6) Personal loan

This would be a last resort option, normally, but you are free to invest in your own business whatever you like and to get back whatever return you can from the investment—the only problem comes when you mix your financial information and records with that of your business. Keep them separate, including taking business meeting notes to record decisions made, even if it’s just you alone in a room with a laptop!

The reality is that knowledge of the basic process may not be enough to get you through the loan process, since you won’t be able to easily source the refinance or factoring that meets your actual resources.

Still need help? Contact us to learn how VBC could help.

8 thoughts on “6 Ways to Get a Business Loan with Bad Credit

  1. This post contains the best advice for loan seekers. With property and other business assets, I think it wouldn’t be a difficult process accessing the loan needed by a business owner. Great tips, Thanks.

  2. I Enjoyed reading through. Quite educative, I must say. The danger people associate with bad credit usually leaves one handicap while attempting to secure loans that would be necessary for the survival of a business.

  3. Wow! I just learned that weathering bad credit could be a step in the right direction towards getting a full understanding of the nature of a business. Quite insightful! Thanks.

  4. I would love to know what you meant by mixing financial information with that of your business. I guess you want us to keep personal expenditure information different from the business expenditure? I would need farther clarification. Thanks.

    1. Certainly they should be kept separate in terms of assets and expenses, but the fact is that starting out, personal credit impacts the credit potential of a new business for sole proprietors and even partnerships in some cases.

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