business loans for bad credit

Do you need extra funding for your business?

Worried you can’t get a loan because of a bad credit score?

If you have bad credit, it can make it much harder to get a loan to fund your business. Lucky for you, you can still find plenty of loans for bad credit out there if you’re willing to put some extra effort into your search and as long as you know how to apply.

If you’re looking for a bad credit business loan, you need to know how to give yourself the best chance at getting approved. Below we’ll give you an overview of the proper way to apply for a bad credit business loan.

1. Decide What Type of Funding You Want

The first thing you need to do when getting ready to apply for a business loan is to find out what your business loan options are and to determine what type of loan you want.

If you have bad credit, your options will be somewhat limited. However, there are some you can choose from. Here are a few of the more common types of business loans you can apply for with bad credit:

  • Unsecured Business Loans: This type of loan doesn’t use collateral but often comes with higher interest rates instead. The approval amount can vary.
  • Term Loans: This is a standard loan given as a lump sum and needs to be paid back in regular payments within a certain period of time.
  • Merchant Cash Advance: Also known as split funding, this loan is ideal if you have plenty of credit card sales from customers. This loan gives you an amount which you’ll need to pay back by giving a percentage of future sales back to the lender.
  • A Business Line of Credit: This is just like using a credit card and works as a line of credit balance. While limits are often lower with a business credit line, it can be very convenient to use.

It’s important to explore and understand your loan options. Understand what each of these types of loans is before you start applying.

2. Know How Your Business Will Be Judged

Before you start looking for a loan for your business, it’s important to have an idea in mind of how your business will be evaluated. Lenders, even those who specialize in bad credit loans, want to know a few things about your business to determine your risk as a borrower.

Lenders will typically look at the following things:

  • Annual Revenue: A lender will want to see that you have revenue coming into your business and, ideally, that it’s growing.
  • Current Debt: Lenders will also look at your current debt to see how well you’re doing managing it. Your debt-to-income ratio should be as low as possible, and you should have a history of making payments on time.
  • Cash Flow: Lenders will also consider your business cash flow when making their decision. Your cash flow should be as high as possible while also being managed well to prove you’re being wise in your business decisions.
  • Profitability: While not always required, a lender also wants to see that your business is making a profit.
  • Past History: Lenders may also check your financial history for red flags. These red flags may include bankruptcy, foreclosures, or other financial activity that indicates poor reliability.
  • Your Personal Credit Score: It’s incredibly important to know what your personal credit score is when applying for business loans. A score under 500 will make it very hard for you to get a loan at all, while low scores in the 500-700 range will allow for a few potential types of loan options. A lender may do a “hard pull” to get your credit report.

Knowing how your business will be judged is the first step in deciding how to go about getting a loan. The factors above are essential to think about before you get too far into the process.

3. Gather the Right Documents

There are a few documents you’ll need to have together to demonstrate all of the factors listed above that lenders will be looking at. You’ll probably want to get all of these documents together before you start seeking a bad credit business loan.

Here are the main documents you’ll want to have:

  • Proof of Ownership
  • Bank Statements
  • Driver’s License or ID
  • Profit and Loss Statement
  • Business Tax Returns
  • Personal Tax Returns
  • All Business Licenses
  • A Voided Check
  • Property Lease Agreement
  • Debt Schedule

Each vendor will vary in exactly what they expect from you, so you may need to prepare additional documents depending on the specific lender and their requirements.

4. Look for Lenders

The next thing you need to do is to start looking for lenders. A local lender such as a bank or credit union may be a good option, however, you should look online as well.

Online lenders are often the best option when you’re trying to find a business loan when you have bad credit. Online lenders work in a very similar way to traditional banks but they do vary a bit as well.

Online loans will typically be easier to apply for and get approved for. The application process will often be quick and easy. Online lenders will usually have lower credit score requirements as well

If you want to find a bad credit business loan, you may want to start with our list of online loans.

5. Start Applying

After you’ve followed the above steps, it will be time to apply for a loan.

Before applying for a bad credit business loan, you should check to make sure you’ve met all of the specific requirements for the lender and the loan you’re applying for.

Loans can vary quite a bit, but most will at least have requirements based on the following:

  • Time in Business: Lenders will usually require that you’ve been in business for a certain amount of time. This will usually be at least 6 months but may be as much as 2 years.
  • Monthly Revenue: A lender will also expect a certain amount of monthly revenue. Usually, this amount will be at least $10,000 but could be more as well.

Once you’ve determined if you meet the requirements of the loan and you have your documents in order, it’s time to apply. The amount of time you have to wait for an approval can vary. But many lenders, especially those that are online, are quick and may even respond within 48 hours.

The Proper Way to Apply for Business Loans for Bad Credit

Finding the Right Loans for Bad Credit

Getting loans for bad credit can be difficult, but it may not be as hard as you think. Be sure to follow the above steps if you want to have the best chance of securing a loan for your business when you have bad credit.

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