Best Business Loan Options for Bad Credit Score Holders
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February 6, 2023
Obtaining loans is often a struggle for entrepreneurs with bad credit scores. Having low credit may limit your options for getting loans. Fortunately, some lenders offer business loans to people with credit scores as low as five hundred.
Lenders use your credit score to assess the risk factor before giving a loan. A person with a low credit score can be riskier to the lender’s investment. Applying for microloans and paying back on time can improve your credit.
Research shows that not all entrepreneurs have good credit scores. One in three Americans needs better credit. Some lenders can provide business loans to entrepreneurs with bad credit. If you fall under this category, you become eligible as well.
About business loans.
A business loan is an amount sanctioned by a bank or a private lending firm to a business owner. The lender provides financial support under a contract to a business or entrepreneur to be paid back within an agreed-upon time frame and interest rate. Companies can use these loans for various purposes, like renovating, buying equipment, paying employees, or acquiring other businesses.
Like other financial advances, you must make regular payments after getting the required loan. However, the interest rate you pay and the repayment terms may vary depending on the private or conventional lenders’ terms and conditions. Here’s a list of lenders who can provide business loans regardless of bad credit scores.
Five best business loan providers for bad credit.
1. Lendee- This money-borrowing app gives you access to a vast network of lenders to get the money you need for your business, regardless of your credit situation. You can use the money to buy equipment, pay bills, or manage emergencies.
| Pros | Cons |
|---|---|
| Lendee allows all small business owners to apply for a loan, no matter their credit score. | It has a vast network of lenders who decide whether to accept loan requests. |
| Lendee loans help improve your credit score through timely repayments. | The loan limit is $2000 |
| You can get loans instantly | None |
2. Credibly- If you are getting good revenue every month but have bad credit, Credibly‘s working capital loan might be a good option for you. It offers loans up to $400,000 according to the requirement of businesses. It also offers a business line of credit and merchant cash advances to finance a business.
| Pros | Cons |
|---|---|
| There is same-day funding | It requires $15,000 in average monthly revenue |
| It provides loans to companies with a low credit score | It requires daily or weekly payments to qualify |
3. Fora Financial- This could be one of the best options for a few businesses to get loans as it offers from $5000 up to $1,400,000. It approves funds within seventy-two hours. Fora Financial doesn’t require any collateral, and you can increase the amount borrowed after paying at least sixty percent of the original loan.
| Pros | Cons |
|---|---|
| Get funds without any collateral | It requires $12,000 in gross sales |
| It gives you discounts on early payments | Can’t have any bankruptcies in previous years |
4. Bluevine- Bluevine provides a business line of credit of up to $250,000. This loan might be a good deal if your need to revolve funds to keep your business going. Bluevine requires a slightly fair credit score but has no hidden charges from start to end other than the mentioned fees.
| Pros | Cons |
|---|---|
| You only have to pay for the amount you use | It requires $10,000 monthly revenue to apply |
| Your credit line refills once you repay the loan amount | Not available in locations like Nevada, North Dakota, and South Dakota |
5. Fundbox- You can get funds into your business bank account from a business line of credit after loan approval. It offers a term loan of $1,50,000. The maximum repayment duration is only 24 weeks—which might not be long enough depending on your business’s current financial status.
| Pros | Cons |
|---|---|
| Get credit decision within a few mins of applying | It gives a short-term loan with a repayment term of six months |
| There are no penalties for early repayments | It requires $1,00,000 in annual revenue to qualify for a loan |
6. Ondeck- It can provide a revolving line of credit of up to $1,00,000 with a repayment term of twelve months that resets with each withdrawal. You can also obtain a term loan of up to $2,50,000 with a repayment duration of twenty-four months.
| Pros | Cons |
|---|---|
| Receive loan amount on the same day | Services are unavailable in Nevada, North Dakota, and South Dakota |
| It gives you loyalty benefits | It requires $1,00,000 in annual revenue to qualify for a loan |
Types of business loans for bad credit scores.
You can get a small business loan even if you have a bad credit score. Many lenders can provide you with a small loan if you have bad credit and have been in business for at least six months. Some lenders also check the annual revenue of businesses before giving loans.
Several loan products can help entrepreneurs in obtaining a loan-
1. Term Loan- This loan allows you to receive a lump sum for different business requirements. Private lenders are more flexible with small business loans as they look beyond just credit scores. These financers provide loans quicker than conventional banks.
2. Secured loan- Business owners must put up collateral to get a secured business loan, be it an asset, equipment, or property. Collateral can help you get a secured loan faster with a low credit score.
3. Merchant cash advance- This loan option is best for businesses with a bad credit score, as lenders are more interested in business sales figures than credit scores. Once the loan is approved, the lender deducts a percentage of daily sales as a payback amount from a business credit card or debit card. Since the payback is automatic, cash advance lenders receive the funds directly.
4. Line of credit- A business line of credit is a particular amount of money you can borrow when you need to and pay back later. You can use the funds as you need them for business purchases like inventory, supplies, or operating expenses. It’s like a revolving credit similar to credit cards.
5. Equipment financing- Businesses can use this option to purchase equipment or an expensive piece of machinery. Lenders don’t require a credit score or any asset, as the equipment is collateral in this type of financing.
6. Invoice factoring- As a business, you sell your outstanding invoices to a factoring company at a discount. The company will pay you a percentage of the invoice upfront and then assume responsibility for collecting the total amount.
Once the financer collects the full repayment from your customer, they’ll send you the difference after deducting the fees as per the agreement. With invoice factoring, your clients repay directly to the lender.
Bottomline
Mostly, borrowers need a minimum personal credit score of five hundred to apply for a business loan on bad credit. Business loan terms and conditions depend on the financial health of your business.
You shouldn’t expect to get the most favorable terms with a bad credit score. Your goal should be to find a lender that offers a loan your score qualifies for, not a lender with the lowest interest rates. There are many lend and borrow money apps to get a business loan, but ensure to use the money wisely.