Business owners experiencing financial distress are all too familiar with the phrase "life happens."
Fortunately, every financial situation is fixable, no matter how bad it is, and getting a business loan with bad credit is easier than it once was. New tools, resources, and products with enhanced flexibility have sprouted in recent years, making precarious financial situations easier to navigate.
This article provides information on receiving a business loan with bad credit and how to use new debt to improve your financial situation. It also details how the Cubeler Business Hub™ can help match your business with financing products based on your qualifying criteria.
How to Get a Business Loan with Poor Credit
When shopping around for business loans, you'll likely see higher-than-average interest rates if you have a poor credit score.
And, if you've decided to take on new debt, applying for a new business loan should serve as an opportunity to improve your financial situation by the time you've paid the borrowed amount back in full.
Let's look at how you can safely apply for and receive business financing with a poor credit score.
1. Understand Your Financial Situation
You'll need to understand your financial situation before applying for any credit product, whether it's a business loan, line of credit, or credit card.
Most, if not all, credit products require the applicant to meet essential borrowing criteria, and every provider has different standards for their products.
While traditional banks and credit unions have stricter expectations, alternative lenders offer more flexibility. The caveat, however, is that flexibility comes with higher interest rates.
Knowing your credit score will allow you to determine where you stand financially, how to improve your situation, and what interest rate you'll secure. The loan rates you'll qualify for are relevant to your credit score.
Two credit bureaus measure credit scores in Canada: Equifax and TransUnion. While both companies have methods of calculating creditworthiness, their scores are roughly in the same ballpark.
For example, if you use Equifax, there are five credit score ranges: poor (300 to 599), fair (600 to 649), good (650 to 719), very good (720 to 799), and excellent (800 to 900).
You can check your credit score for free through various online credit score checkers or use the credit bureaus listed above for a small fee.
Typically, many business owners with poor or fair scores can expect to face challenges receiving a reasonable loan rate. If you find yourself within these categories, you may have debt you'll also need to address.
Don't let this intimidate you, however. The unfortunate reality is most Canadians carry some form of debt, and while having a low credit score can put you in this category, you don't need to stay in this position for a while.
Let's examine how you can improve your financial situation and overall credit score.
2. Plan to Improve Your Financial Situation
Now that you know where you stand financially, it’s time to create a plan to mend your financial situation.
Bad credit usually stems from a track record of making late or incomplete bill payments or missing them entirely.
To improve your financial situation, you’ll need to:
Make a plan that considers the debt you owe in addition to your immediate expenses, including the potential repayments on the new loan you'd like to apply for
Pay your credit cards in full at the end of each month or, at the very least, make the minimum payment requirement
Monitor your score regularity using free credit checking services
Keep your credit utilization ratio below 30%. Your credit utilization ratio indicates how much credit you’re using in relation to the total credit limit of a product. For example, if your credit card has a limit of $1,000, you’ll want to keep your total balance around $300 at any given time.
By following these steps, you'll see improvements sooner than you think.
3. Compare Borrowing Options
If there's ever been a time to stress the importance of comparing rates on borrowing options, it's now.
Understanding the terms and conditions surrounding the loan product is essential if you want to improve your credit score and get the lowest loan rate, as it allows you to pay down debt faster.
Applying for products that don't align with your credentials can negatively impact your life and business while causing unnecessary frustration.
Alternatively, you can use the Cubeler Business Hub™ to shop and compare rates of pre-qualified business loans based on your financial profile.
Cubeler Business Financing allows SMEs in Canada to link their accounting software and receive rates based on their qualifications and needs. That means a higher rate of approval and faster access to business capital.
Create a free account today to learn more about how Cubeler can help you improve your credit score and view options from Canada's leading financial institutions.
Final Thoughts: Getting a Business Loan with Bad Credit
Getting a business loan with bad credit can take time and effort. However, it can be the first step towards improving your business's financial situation.
Remember to look forward, be patient, and stay positive. You can rectify your financial situation within a year of making positive changes, putting you and your business back on track.
FAQs on Bad Credit & Business Loans
What is the minimum credit score for a business loan?
There is no set minimum credit score for business loans. However, lenders will often impose a minimum score depending on the loan. The lower the credit score requirement, the higher the interest.
Are business loans based on personal credit?
Business loans are only based on personal credit if your business does not have any credit history. However, lenders may look at your personal credit score if you are a high risk lender.
How do I get money to start a business with bad credit?
You can apply for financing as a new business if you have a partner or a guarantor willing to cosign on a loan. This can come with risks, as the cosigner is responsible on your behalf if you default on the loan or credit product.