It is a well-known fact that the credit rating influences your financial life. A poor credit rating can make it difficult for you to get home loans or business loans. Bad credit ratings make it extremely difficult to get a loan and keep your business alive. However, there are ways you can get bad credit commercial finance. Here are a few things to know which can help you with these kinds of financing options–
Introduction to The Credit Score of a Business
The business credit score is a measurement of the company’s creditworthiness. It is dependent on the entire financial history of the business. This includes the credit accounts, the loan applications, the supplier payment times and the loan repayment history.
Good credit scores will help your business to get finance more easily. You will also secure better credit limits and lower interest rates. Conversely, bad credit scores can cause your loan applications to be rejected, making it harder to secure finance.
How to Get Finance Despite Bad Credit Scores
Generally, if you have bad credit scores, you cannot take the traditional route of financing. You need alternative methods to secure the loan required. As a result, it becomes important to know what these alternate lenders look for while offering loans.
These alternative lenders consider various factors other than the credit score. They are mainly concerned with the business’ ability to meet the repayments. As such, they consider the following factors:
- The business strategy or plan
- The total revenue
- The profit margins
- The gross monthly sales
- The growth capacity
Types of Loans That You Can Get
There are a few kinds of bad credit commercial finance that you can get. Most of them can be divided into the two following categories–
Unsecured Loans for Business
These are unsecured loans, which means you do not need to put up any collateral. In these kinds of loans, you will be borrowing a fixed lump sum. As per the agreement, you will need to pay the sum back along with interest over a specified period. However, the interest rates for these loans are generally high. Many businesses opt for these loans even if they have good credit scores.
Bad Credit Loans
These loans are specifically meant for those businesses which have a bad credit. However, they need to have a robust balance sheet to qualify for these loans. The lenders can consider a variety of factors to assess the eligibility of the business for this loan.
Things to Consider
When you are looking for financing options for your business with a bad credit score, there are a few things you ought to know. Here are the main points that you should be familiar with:
The Rates Will Be Higher
Since your business has a bad credit, lenders will consider it to be riskier. As a result, they will charge higher interest rates. They may also place limits on the amount that you can borrow. These restrictions are in place to enable the lenders to minimize their losses in case your business fails to repay the loans.
The Difficulty of Finding Lenders
It can be quite difficult for your business to find a lender, willing to provide the finances if the credit scores are poor. Most traditional lenders such as banks will stay away. While the number of lenders specializing in these kinds of loans are increasing, they are still far and few between.
It can certainly be stressful trying to find bad credit commercial finance. However, with a bit of patience and effort, you can find a willing lender.