Your Guide: Getting Bad Credit Business Loans

By: Aaron Robbins0 comments

Are you setting your sights on your business future, but feel that your bad credit is holding you back? You might be asking yourself “can I get a business loan with bad credit?”, well, thankfully, the answer is: yes, you can!

Don’t let your credit file stifle your business growth — we’ve prepared a handy guide to equip you with everything you need to know about accessing business loans for bad credit.

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What causes bad credit?

For those with a dismal personal credit history, they’re often unaware of what’s caused their credit score to plummet over time. A bad credit score will depend on the credit reporting agency, however, typically, a score less than 500 out of 1200 is considered to be ‘poor’.

Some of the most common causes of bad credit are:

1. Defaults on your credit file

A ‘default’ on your credit file is a credit provider (or utility provider) listing on your credit file that you’ve had a payment of $150 or greater become overdue by longer than 60 days. Sometimes, old accounts such as electricity bills when shifting home can become overlooked. This is one of the silent ways that a good credit history can become eroded over time.

To combat this, it’s essential that you’re diligent with always updating your personal information whenever a change occurs, to ensure that bills do not fall through the cracks, and pay your outstanding balances on time, where possible. Missed payments and late payments can contribute to a bad credit history over time, as well, not to mention being declared bankrupt!

2. Applying to too many credit products at once

Making numerous credit applications in a short period of time can negatively impact your credit rating. This is especially important for start-up business owners to understand, as applying for multiple business loans in quick succession can work against the intended outcome of securing finance!

3. Utilising your full credit limit

A bad credit history doesn’t always arrive due to bankruptcy or defaults on your file, simply ‘maxing out’ your credit limit can drive your personal credit score down. A credit utilisation ratio is often used by prospective lenders to assess what percentage of your total allowable credit limit you’re using. If you’re using close to 100% of your credit limit, it leaves little wiggle room to lend you further money, and sustained periods of a high utilisation ratio can prevent your credit score from improving over time.

What leads to a business having a bad credit history?

Just as our lending and repayment behaviour affects our personal credit score, how we manage our business lending and credit accounts directly affects our business credit score. Start-up businesses often find that they start out with low credit scores, as they have no trading history and, therefore, no borrowing or repayment history to gauge their creditworthiness.

Also, almost half of new businesses fail to keep their doors open within the first three years, which is indicative of the struggles to create and maintain a profitable business. This is particularly true for small business owners who often place their own personal capital on the line to kickstart their business venture, and end up with a bad credit record for themselves as well as their business.

Business disruptions such as the COVID-19 pandemic and extreme weather disasters can also place Australian businesses under enormous strain, which often translates into long-term financial difficulties.

How can a business get a bad credit business loan?

It’s not always possible to foresee the need for a loan years in advance, however, the more groundwork that business owners can put into improving their situation and creditworthiness, the better chance they stand at accessing business finance.

Some of the best ways that bad credit businesses can improve their chances of being able to borrow money are:

Access a copy of their credit report

An unhelpful approach for businesses with a bad credit score looking to access bad credit business loans would be to throw caution to the wind with their loan application. Understanding what’s led your business to have a bad credit rating gives you the opportunity to rectify any errors on your business credit file or identify patterns of behaviour or the root causes of your business’ bad credit history.

Credit reporting agencies are required to provide you with a free copy of your credit report once every three months. Regularly reviewing your business credit file can not only help with understanding your business credit history, but also put you in good stead to improving your low credit score.

Understand and document your cash flow

What’s more important than showing a financial institution you have sufficient cash flow to support a bad credit business loan, is to understand for yourself whether your business is in a position to take on a loan.

Having your financial statements at the ready will not only aid in expediting the lending process but will provide sound oversight of your business cash flow to identify areas of strain or high cash flow seasons.

Bad credit business lenders are often alternative lenders outside the big four banks, who set loan terms and decide on loan approval based on your revenue forecasts, capital and business cash flow — so documenting your cash flow, profit and loss statement, ATO returns and balance sheet are all integral to accessing funds.

Look at secured business loans

‘Guaranteed approval’ loans don’t exist in Australia, however, you can increase your chances at loan approval by providing an asset as loan security for secured bad credit loans. A security asset can lessen the risk to the lender and improve your chances of approval — while approval is not guaranteed, the security asset can significantly increase your chances.

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Accessing business loans when you’ve got poor credit but a prosperous future

Diverse Funding Solutions are one of Australia’s leading private lenders, and are experienced in providing finance solutions for business owners with bad credit. Depending on whether it’s a start-up business loan, a loan for business equipment or expansion, there are many different loan types that can solve a business’ lending needs.

Looking at your personal situation and your future, rather than relying on your past, means that we can arrive at a tailored solution (which often doesn’t involve running a credit check at all), unlike traditional banks.

To discuss your needs and what could be available to you, even if you or your business come with bad credit baggage, contact the professional team at Diverse Funding Solutions, today.

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