Bad credit ratings can make it harder when getting a business loan, but it doesn’t make it impossible. Each lender is different and has varying qualification requirements. Part of the evaluation may be credit scores, but other factors can influence a lender’s decision. Before looking for a loan, business owners should understand what goes into a credit score and what circumstances lenders look at when deciding to approve a loan.
Most people assume their credit score is a FICO score; however, a VantageScore is used by a few lenders to determine creditworthiness. If a lender uses a FICO score, a credit score between 300 and 579 is considered very poor. A VantageScore of 300 to 499 is considered very poor, while a score of 500 to 600 is considered poor.
The two scoring systems use different criteria. Over 50% of a FICO score is based on payment history and the amount of available credit compared to your total credit limit. VantageScore looks at payment and credit history. It focuses on the type of credit, the repayment length, and the percentage of available credit in use.
Lenders look beyond a business’ credit score when evaluating a loan. They will look at how long the business has operated. If a business only has two or three years of operation, its credit history will be limited compared to a 20-year-old company. Securing a business loan usually requires some type of collateral. If the business will use the loan to purchase equipment, the equipment serves as the collateral in the same way a car secures an automobile loan.
If a company has a stable cash flow, lenders are more inclined to approve a loan. A steady cash flow increases the likelihood of repayment. Many lenders want three years of financial statements to determine annual revenue and profitability. They are trying to assess their risk if they approve your loan.
Getting a Business Loan
Before applying for a loan, check your company’s credit score. If it’s lower than you’d like, consider waiting to apply for a loan. Use the time to build your credit score to get more favorable rates by doing the following:
- Pay bills on time. Good credit begins with prompt payments. Unless the business has a cash flow problem, pay bills on time.
- Adjust your credit utilization ratio. A low credit utilization ratio indicates that your business has more credit available than it uses. If you have a line of credit or credit cards, make sure they are not maxed out.
- Dispute errors. Monitor credit reports. If there’s an error, dispute it. It is worth the time if it improves your chances of getting a business loan.
Sometimes it’s not possible to wait for a loan. If your business needs equipment or vehicles to operate, you’ll need to look for lenders specializing in loans for companies with bad credit.
Finding a Lender
Traditional lenders such as banks and credit unions probably won’t approve a business loan if you have poor or very poor credit scores. You can certainly try, but your time may be better spent looking at alternatives. For example, community development organizations may have federal funds for businesses. However, most of these funds are released through banks and credit unions. Although the qualifying criteria may not be as strict, the approval process may take time. In most instances, the funds are limited, and competition is high.
Online lenders such as Coastal Kapital may be a better option for getting a business loan with bad credit. Coastal offers loans for equipment and working capital in a range of markets such as agriculture, restaurant, transportation, and landscaping. They provide short-term microloans for working capital to keep your business moving forward. Working capital loans are unsecured loans that can be approved in hours and funds released in a day.
Coastal Kapital’s financing options include Small Business Administration loans. The SBA loans can follow the traditional process with up to a 30-year term or express loans that can be approved in weeks and not months. Equipment financing for heavy equipment or medical devices can include fair market value lease options or a $1.00 buyout.
To apply for a Coastal Kapital loan, fill out the one-page application online. In less than two hours, you will have a decision. No need to spend days collecting documentation and weeks waiting for a decision. Why not apply today?