How Do I Get a Business Loan with Bad Credit?

The 2008 recession was long and difficult, and the much-touted recovery still hasn’t made its way to many small business owners. Small businesses employ a little more than half the workforce, but 80 percent are rejected for business loans. This is in part because the businesses that survived the downturn came through much the worse for wear. But it’s compounded by the fact that, after the boom times of the early to mid-2000s, banks tightened up on lending of all types.

Against this backdrop, many business owners feel that getting a business loan with bad credit is impossible. It’s challenging, but with the help of Alliant Business Systems, it’s not entirely out of reach.

Why Might You Need a Business Loan?

Business loans can free your business up to hire more employees, renovate your existing location, open a new one, or introduce a new product line. Minus that infusion of capital, you may feel as though you’re running in place. However, with a bad business credit score or a short business history, that money is hard to come by. There are three different routes to securing money for your business if you’ve been turned down for a business loan.

Path One: Alternative Lenders

If banks are risk-averse, alternative lenders — commercial non-bank institutions — may be worth exploring. You will need to submit many of the same background information (a business plan, banking records, and the purpose of the loan), and will also need to submit to a credit check. However, the requirements aren’t quite as strict as you’d find with a traditional lender.

You should also be aware of the downsides to non-traditional loans, since there are risks involved on your part. What looks like an application could be harvesting your information for sale to brokers, lenders, and others. Those brokers may look like lenders, but may also charge sky-high fees and commissions, since they’re often taking fees from all parties involved in the transaction.

Finally, you’ll have to be especially diligent about interest rates, fees, and repayment terms. The APR — which accounts not only for interest, but also for the fees and other associated costs, some of which you wouldn’t see with a bank loan — could be as low as 18%, but could also be as high as 113%.

Path Two: Alternatives to Business Loans

If you’ve been turned down by a bank or credit union, and you’ve done your due diligence on alternative lenders only to find the terms too onerous, there are still alternatives available. Here, too, the results are a decidedly mixed bag.

Business credit cards offer easier approval, but less capital at a higher interest rate. Merchant cash advances borrow against future profits, but at even higher rates — these are the payday loans of the business world. A home equity loan is easy to get with sufficient equity in your home, but if you lose your business, you could lose your home as well. Other options, like crowdfunding, investors, or credit partners (where you’re effectively “borrowing” a co-signer’s better credit) also have significant pitfalls.

Path Three: Credit Repair

Here’s where we come to the “Bad News/Good News” portion of the article: you may have been turned down for business credit, but you need not necessarily stay that way. Your business credit score is dynamic, meaning that as your business changes, so too does your credit score. Once you understand what your credit report contains and what stakeholders see when they pull your credit, you can set about making repairs.

While it’s possible to repair your own credit, the internet is a wealth of often-contradictory information that could hurt as much as it helps. Then, too, business credit repair is time-consuming even (or perhaps especially) when it’s done right. Alliant Business Systems helps you better understand your credit score, then begins methodically correcting any erroneous information. We’ll also help you take concrete steps that can improve your score, and with it your chances at a loan.

Our Advice

Depending on your business situation, you may be looking more closely at certain options at certain times. However, given that your best bet for long-term viability is restoring your business credit to good health, we suggest a multi-pronged approach.

Credit repair is well worth the time and effort. It can be time-consuming, so it’s worthwhile to start there, and to start as soon as possible. You can use the other options on an ad hoc basis until your business credit is back to a point where loans and other credit become options again. Contact us for a business credit consultation to learn more.