At some point in a business’s life, they would like their finance to grow, restructure, or develop. Whereas adapting and changing is always good, the drawback is you need good credit to get approved for a business loan, especially with banks and traditional lenders. If you don’t have the best credit score, applying for a business loan may be daunting and intimidating leaving you feeling discouraged.
Fortunately, the road does not finish there. You have the chance to achieve your business goals. All you need to do is look for a lender that will work around your credit issues. To know more about bad credit business loans, how to get one, and how you can improve your credit, continue reading below.
What is Considered a Bad Credit Score?
There is no magic number that is considered to be bad credit because each lender has different perspectives and requirements. For personal credit scores, a score of 560-659 is considered as fair score, 650-724 is a good credit. Anything lower than 560 is considered to be poor or bad credit. Which means the lender considers you as a high-risk borrower. On the other hand, there is no benchmark for business credit scores as lenders consider more than merely the credit score and each lender has different requirements.
Types of Bad Credit Business Loans
If you have bad credit, you may not have access to all of the different types of loans. Most lenders works with borrowers with bad credit offer two types of loans: retail merchant advances and business term loans. These two types of loans are approved based on the monthly sales of your business. Let us talk more about it.
Retail Merchant Advances
Your loan amount is based on your monthly credit card sales. Your loan is repaid daily based on your daily sales. This is the most flexible solution for business owners who has nice daily business operations.
Business Term Loans
A business term loan is for borrowers looking for a larger amount of money to use for a larger project due to small retail merchant advances. these are the common requirements:
Canada based business
Month card sales are $40,00 or more.
Business is not home-based.
Business is not e-commerce
These kinds of bad credit mortgages do not require collateral and repayment terms. The terms can be flexible that suit your needs and business financial requirements.
How Will Your Bad Credit Affect Your Loan?
If you have bad credit, you’ll be perceived as a high risk in the eyes of lenders. The lenders are taking risk for lending you money. Interest rates are based on the amount of risk is taking which means that the worse your credit is, the higher your interest rates will be on financing.
Improving Your Chances
You might feel discouraged having bad credit, but there are ways you can do to improve your chances of approval and to get better terms and conditions
Get a Guarantor. Also known as a co-signer, this is a person who agrees to repay your loan if you default. This person should be someone you trust and has good personal finance practices.
Check Your Credit. Check your credit before applying because you’ll know exactly what the lender is seeing and will give you the opportunity to do what you can to improve your credit before submitting an application.
How Can You Improve Your Credit Score?
There are several things you can do before submitting an application to improve your credit score. Keep in mind that it can take several months for your actions to reflect on your credit score. you may improve your credit score by:
Pay off other outstanding debts
Pay your monthly payments on time and in full
Keep your credit utilization ratio
Don’t apply for financing unless you absolutely need it and can afford it
Keep old accounts open
Dispute errors on your credit
What Do Alternative Lenders Consider upon Application for a Bad Credit Business Loan?
Alternative lenders like Mortgage Canada are an excellent option for individuals who need financing with poor credit. Because they work with bad credit, their requirements are significantly different from big banks or other Financial Institutions.
Employment. Alternative lenders will consider your employment history and your current job.
Income and Expenses. Lenders will request to see your income and expenses.
Business Goals Are Still Achievable with Bad Credit
Having bad credit can be frustrating and can be easy to get discouraged. but in reality, you have options. Your first goal is to find a lender that is willing to work on your situation. Business loans in Canada can help you match with a lender who works with a variety of business owners regardless of their credit.