How will You Finance Your Business When Your Credit Score is Poor?
“Getting a business loan when your credit rating is bad can be difficult, but you have a lot of other alternatives.”
A business loan means you need a large sum of money for your business. Whether you need funds to buy equipment or increase your working capital, you should have a good credit history. Business loans do not act like personal loans. Financial institutions look over your business credit rating, which is different from your personal credit score. If the report shows a high risk, you are likely to face rejection.
Several banking companies like NatWest provide business loans at affordable interest rates, but at the same time, they want you to have a stellar business report. Thanks to direct lenders who are a bit lenient when it comes to financing your business. In fact, they allow you to have several other alternatives to borrow money for your business if your business loan application is turned down. Here are the best loan options you can consider to finance your business:
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Short-term loans
Of course, the rejection of your loan application can put a nasty taste in your mouth. You do not need to be edgy and despondent as you can apply for short-term loans. A lender will approve your loan application after considering your personal credit report. You can get the loan despite the bad credit history.
Try to apply for installment short-term loans that usually come for three to 12 months. They are paid in 12 equal monthly installments, so easier to manage. You are likely to get a small amount of money depending on the lending policy, but they serve you best if you need a small chunk of money. If you think you can benefit from short-term loans, do not hesitate to apply for these loans.
Business line of credit
One of the biggest advantages of these loans is you can use them for any business purpose. These are unsecured loans and available to bad credit borrowers. Business is dynamic. You never know when you fall short on cash. You can apply for these loans anytime when you need quick access to funds.
Most common reasons for applying for these loans are operational expenses like increasing working capital, hiring new employees, and buying inventory. A business line of credit is different from short-term loans. You do not get cash in a lump sum to be repaid over an extended period. With a line of credit, you can reuse money as long as you make payments on time. The borrowing limit ranges from £10,000 to £250,000. However, you need to secure the loan if you want to borrow more than £100,000.
Before the lender approves the loan, they will ask you to submit documents like a personal and business tax return, bank account details, and financial statements. According to profits you generate every year, the lender will decide on the disbursal limit.
Invoice factoring
Have you ever got a business loan without having your credit report checked? Of course not, because a lender always tries to check your affordability, but you can get cash based on the creditworthiness of your customers. When you apply for a business loan, a lender always considers your credit report, but in the case of invoice factoring, companies approve the loan application on the strength of your customer’s credit.
You can take out these loans to meet your business regular expenses. You can also repay your existing debt with these loans, hence they are known to build credit rating. Further, you do not need to be afraid of losing your credit score.
Invoice financing
If your business needs immediate cash inflows and your business loan has been turned down, you can borrow money against the amount due from your customers. The loan taken out against an invoice is known as invoice financing. A lender may allow you to obtain a maximum of 85% of the amount due that you can use for any purpose. You can easily apply for the loan against invoice despite very bad credit history.
Equipment Financing
If you are looking to get a loan to buy equipment but you have a bad credit history, you can secure the loan against equipment. It becomes automatically a secured loan so you can get them at a low interest rate. As you get money, you will start repaying it monthly unless you settle the debt. Remember that you will lose your equipment if you fail to repay the debt on time. Once you have paid off fully, you will get the title of your equipment. Before you apply for the loan, you should use business loans calculator.
Aforementioned are the best alternatives to borrow money to finance your business when you have a bad credit history. Since all these options are also subject to terms and conditions, you should focus on building your credit score. No lender will turn down your application if your credit score is excellent.
