From Zero to Hero: How to Get Approved for a Bad Credit Start-up Business Loan in Australia

By: Aaron Robbins0 comments

Like so many entrepreneurs in Australia, if you have a great business idea, but a terrible credit history, accessing start up finance can be the barrier to business fruition. Thankfully, you’re not limited by the offerings of traditional banks or lenders — many business owners are realising the benefits of private lending.

With much less rigid lending criteria, and the ability to approve finance without the need to run credit checks, private lenders can help turn you business dreams to reality. We encourage you to read our short guide below on how to get approved for a bad credit start up business loans in Australia.

Secured business loans for start up businesses

Amongst the many types of business finance on the market, most are a form of secured business loan, which means they are offered provided you have some form of collateral or security to provide the lender.

What can start ups use a secured business loan for?

Business cash flow can be tricky to maintain even for established businesses, so it’s incredibly common for startups to use secured business loans to inject the working capital that they need upon opening their doors, before they can generate traction with their customers or clients and therefore begin generating revenue.

While business loans can be a fantastic way to initially cover your operating costs, as a startup, you’ll find that most of your lump sum expenses are all required before you can commence trading. Accessing a lump sum of funds via a secured loan can mean covering the costs of:

  • Buying or leasing the equipment that you’ll need to be able to begin offering or delivering better services. This doesn’t necessarily need to be vehicle finance, but could be for a shop fit out, information technology, or industry specific tools and machinery.
  • Leasing, renovating or purchasing a business space. Even small office spaces where you’ll centre yourself at the beginning of your business endeavour can be costly upfront, not to mention the ongoing lease payments once the lease commences.
  • Purchasing inventory or stock to sell.
  • Covering the costs of onboarding an employee, if you require human resources upfront. Understandably, if you do employ staff, they will be an investment in the business. However, like most investments, employees do need some time before generating a return. Business loans work to cover the initial expense while employees get up and running.

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How to get approved for bad credit business loans

We share our helpful hints and tips on how to get approved for a secured business loan when you have bad credit.

1) Demonstrate your existing trading history

Most business finance solutions, including start up business loans, are offered to businesses with at least 6 months trading history. Therefore, it’s important to show your lender the existing trading history that you have, to illustrate your growth and traction in your market.

2) Maintain a good reputation with suppliers and customers

Every business owner loves to receive a glowing google review, however, taking the time to build and maintain relationships with suppliers and customers can not only look good in the eyes of a prospective lender, but can sure up the continuity of your cash flow in the future to repay the loan.

Some of the best marketing that small businesses can have is word of mouth. If you make a name for yourself in the early days and maintain it, the more referrals you can create — and at zero financial expense to you.

3) Hold a property to secure the business loan

Perhaps obviously, a secured business loan does require a form of security. For most small business owners, they won’t yet have the business assets to support lending, so they’ll need to look at their personal assets. Residential property or commercial property is generally the most favoured collateral for secured loans.

4) Have business plans at the ready

Not every lender will require every last detail of your business plan, however it does help to have your business planning documents handy. Working with lenders involves showcasing them your ability to repay the loan, and your worthiness as a borrower (seeing as though most private lenders won’t be solely relying on your credit history).

5) Lay down a deposit, if you can

It’s highly likely that you’ve already laid down some of your personal assets to get your business off the ground, however, being able to help put a deposit down towards a secured business loan can demonstrate your commitment to the lender.

6) Consider what your exit strategy will be

Private lenders who offer secured business lending to those with bad credit typically do so by having a security property against the loan, and devising a suitable exit strategy. Considering how you’ll pay off the loan before you speak to your lender will help you articulate yourself well during the application process, and will also ensure that you’ve conducted your due diligence on whether a bad credit secured business loan is the right option for you.

More on how secured business loans work

We further explain some of the important aspects of secured business loans.

Are unsecured business loans available if I have bad credit?

Generally speaking, you will be ineligible for an unsecured business loan if you have bad credit. Unfortunately this does present as too much risk for even the most flexible of private lenders.

Unsecured loans on the general personal loan market still come with more strict lending conditions, and offer higher interest rates to help mitigate the lender’s risk.

What is the difference in interest rates between secured loans and unsecured loans?

The range of interest rates offered on a secured loan vs an unsecured loan depends on the lender, the product type and the individual. In some instances,

What is private lending?

In the lending market, there are institutional lenders, such as banks and credit unions, and private lenders. Also known as peer to peer lending, private lenders are typically a group of very wealthy individuals who come together to lend their own money to individuals and businesses. Similar to how other financial institutions invest your money in order to generate a return, private lenders seek a financial return in exchange for lending money.

What leads to poor credit history amongst business owners?

When you run your own business, the chances of having a poor personal credit history are highly likely, if you’ve needed to take out personal loans to cover business expenses, and then not generated enough personal income from the business to repay them diligently. Consider

Who offers the best secured business loans for startup businesses?

When you inevitably look to compare secured business loans, you’ll realise that not all secured loans (or lenders) are made equal. To access the fast, flexible business finance that you need, with a specialist lender who can circumvent the need to rely on your credit history, chat with the team at Diverse Funding Solutions.

We love to see our entrepreneurial clients success in their business venture with the help of secured business finance from DFS.

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