Poor credit might make your chances of securing funding with traditional lenders seem unlikely, but it doesn't mean that your search for a business loan should end there. Having bad credit or no credit might change the goalposts, but the game remains the same. You still have plenty of options available.
Unrealistic credit requirements
It comes as no surprise that the main difficulty in getting a small business loan are the strict requirements of the banks who set the bar too high for most normal businesses.
The high street banks often boast of having set aside a provision of billions of pounds for small business development loans. Actually finding enough small businesses applying that qualify for this money is often another matter, as you might have already experienced.
A quick search of high street lending websites reveal many great loan deals, great that is until you click on the "Is your business eligible?" button.
Bad business credit or poor personal credit - which one are you?
Lenders (and in particular alternative lenders) are increasingly looking, not at previous bad form, but at how the business is faring right now. As well as examining your financial information, they will also seek to clarify your industry reputation, customer reviews and current monthly sales reports in their underwriting procedure, even if you have a less than perfect credit history.
Sole trader - the lender will inevitably look at your own personal credit history.
Start-up - lenders will examine the directors' or partners' credit worthiness.
Small business - lenders review the financial history of the business, including previous loan agreements (including defaults and credit card payments), as well as looking at the financial viability of the business.
Overcoming bad credit
If you are willing - and have the time - there are ways in which you can build back your credit rating.
Your business credit score is based on a number of factors including; credit cards, previous loan arrangements, overdraft, mortgage and any other debt your company might have. Your personal finances may also be considered if you happen to be the main 'credit rep (representative)' of your business.
Redressing any areas that are working against you, like clearing any credit cards, paying any outstanding loan agreements and obtaining your credit score can highlight any credit areas of your business that are counting against you. Once you know what they are you can seek to improve them. A big help will also be ensuring you pay your bills on time.
How to get a business loan with no credit
Having bad credit is not the same as having no credit at all and if you have no credit at all then finding a lender is more about how good your business plan is than how good your credit score is.
When you approach a high street lender with no credit consider the following four options:
- Take the time to build up a good relationship with your bank.
- Take out a company credit card and build a good credit history.
- Offer any assets you are purchasing as collateral against your loan.
- Provide a detailed business plan with forward projections.
It is still entirely possible to gain an unsecured loan, a loan that doesn't risk your assests, if your business plan is sound and you present strong experience and knowledge of your field.
Approaching alternative lenders can also help you access finance that isn't necessarily as strict as the high street banks. Before lending many alternative lenders look at a combination of things including:
- personal credit reports
- previous tax returns
- profit and loss statements
- monthly sales
- customer reviews
- business plans
- financial projections
If you look to alternative lenders and angel investors then be prepared to give up a portion of your business in exchange for the business funding you need to grow.
Whatever type of funding you are seeking, whether you have good credit, bad credit or no credit at all, it pays to be prepared. So make sure that your business plan is clearly set out before approaching a lender because it doesn’t matter how creditworthy you are, if your business plan isn’t a good one, you’ll find yourself being turned down again and again for a loan.
To learn more about how we can find you a finance package that works for you and your business talk to one of our experts.