Small Business Loans for Bad Credit

Lenders often look to credit when it comes to managing their risk. As such, it’s frustrating for many business owners to go through the lengthy process of getting small business loans, only to be derailed by their credit scores. You may have been able to maintain a good score in the past, but recent circumstances have pushed your credit down.

It’s not the end, as there are alternative lending options available besides small business grants for those with bad credit. You’ll only need to find the one that suits you best. Clarifi specializes in providing loans for small businesses with bad credit scores. If you’re interested, contact our specialists today to learn more.

The Impact of Credit Score

Your credit score is a measurement of how reliable you are when it comes to managing your debt. The most common model sought out by lenders is the FICO. Even a PPP loan and an SBA Loan consider your FICO score before providing approval.

It’s a three-number score, and the higher you get, the more options you have. You’ll find that the best loan options are available to those with exceptional credit.

Here are the different brackets:

  • Poor (300 – 579)
  • Fair (580 – 669)
  • Good (670 – 739)
  • Very good (740 – 799)
  • Exceptional (800 – 850)

You have bad credit when you have a fair or poor credit score. It is not the end, however, as you can work your way back up. Alternative lenders like us provide opportunities for small businesses to get loans and bounce back. You can get access to the working capital you need for success.

Types of Loans for Businesses with Bad Credit

Alternative lenders like us offer several options for businesses to choose from. Each provides its benefits, and you can choose one that best fits your situation.

These include:

Merchant Cash Advance

A merchant cash advance or MCA is a lump sum loan. You gain access to liquidity quickly, but you have to pay a percentage of future debit and credit sales back to the lender. This loan is only possible if you can process debit and credit payments. These loans tend to have higher interest rates, but it’s a way to get the money quickly.

It’s easy to apply for an MCA, though you’ll have to commit to paying that percentage over the time of the loan.

Credit Line

A lender like us can also issue a line of credit for your business. You can have access to a set amount of money and can withdraw the funds as needed. You are then charged interest for the credit you acquired. Credit lines are a more flexible type of loan.

An alternative is to get a business credit card. However, unlike the former, cards don’t have the money you can withdraw from easily. They may have favorable terms, or you could get a card that provides you with rewards each time you use it.

Working Capital Loans

These types of loans often have a high chance of approval and have more lenient requirements. It’s a loan you can use to pay for inventory, payroll, and other funds necessary for daily operations. The limits on how much you can borrow will depend on the lender.

Short Term Loans

Short-term loans can provide you with the money you need quickly. However, you have a shorter window to pay them off, which often means higher interest rates. Each payment period, you’ll have to give back a part of the principal plus interest. How much you’ll pay will depend on the terms you agreed on.

Secured Loans

A secured loan is another term for a collateralized loan. You provide collateral to the lender that can help them recover losses if you default. There are different types of collateral you can provide a lender, from inventory to cash, property, and more.

With many loan options available, it can become overwhelming. If you cannot decide on the loan for your business, consult with Clarifi. We’ll answer any concerns you may have so you can arrive at a decision.

Improving Your Chances of Approval

There are several routes you can take to improve your chances of landing a loan. You’ll want to do everything you can to bring confidence to the lender and get approval. Here are the two most common ways businesses secure loans even on a low credit score:

Get a Co-Signer

A co-signer is someone the lender can rely on if you cannot pay the loan. They are essentially someone who can take partial responsibility. It’s not easy to get a co-signer as you are putting part of the pressure on them. They must also have a good credit score or a proven source of steady income to make payments.

Essentially, if you cannot pay, the lender expects the co-signer to fulfill it on your behalf. Make sure it’s someone you can trust and one who will support you if you are in trouble.

Offer Collateral

Not all loans will need collateral, but that doesn’t mean you can’t offer it. Since lending has risk involved, offering collateral lessens that risk. You are communicating to the lender how serious you are with the loan and putting your confidence forward. You can also seek out loans that have collateral specifically.
For example, you can offer inventory or invoices as collateral. One of the most common ways to provide collateral is through new equipment. The lending company can have more confidence with the loan as they know they can use your assets and sell them off if you default.

It’s the First Step

Remember that these loans are not only a way for you to get the money you need, but they can also rebuild your credit. Stay diligent in fulfilling these loans so you can get access to better terms in the future. You can even develop a good relationship with the lender, and they can open up more opportunities for you.
If you’re interested in starting your path to credit recovery, consult with Clarifi. We offer different types of loans to suit your needs.