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Can You Get a Small Business Loan with Bad Credit?

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Businesses don’t just need capital to survive hard times, they need it to grow as well. 

Whether your small business needs money to upgrade your equipment, hire more people, purchase inventory or advertise online, access to capital is an essential aspect for almost all businesses across Canada.

However, if a business has bad credit – or if the owner of the business has poor personal credit – it can be more difficult to get a loan using traditional lenders like banks. And even if you can get a loan, the weaker the credit history, the greater the likelihood of higher interest rates. 

Luckily, at Lendified we specialize in helping business owners get the small business loans they need, and we can help even if you have a less-than-stellar credit history. 

What is Bad Credit?

When someone refers to a person or a business that has “bad credit,” they are referring to a credit score. These scores (measured from 0-999) are created by credit bureaus, and represent an entity’s creditworthiness. In Canada, the major credit bureaus are Equifax and TransUnion.

All of a business’ creditors (such as banks, suppliers, utility companies, etc) report payment histories to credit bureaus. Just like with personal credit scores, your repayment history will determine your credit score.

If your business is an eatery and you need a restaurant loan, or if you’re a builder and need a construction business loan, the process is the same: The higher your score, the better your chances of securing a small business loan.

Generally speaking, credit scores are ranked in the following manner:

  • Credit Score of 800 – 850: Fantastic 
  • Credit Score of 740 – 799: Very Good
  • Credit Score of 670 – 739: Good 
  • Credit Score of 580 – 669: Fair
  • Credit Score of 300 – 579: Bad

How is My Personal Credit Score Related to My Business’ Ability to Get a Loan?

Lenders like banks will assess a number of factors when determining whether a business’s credit score merits a small business loan. 

Of course the business’s credit score is something they will look at, and other elements like annual projected revenue, cash flow, and the amount of time the business has been operating will be included for consideration. 

However, in some cases – particularly if a business does not have a long credit history – banks and other institutions will also factor in the owner’s personal credit score to get a better idea of whether or not they represent a risky investment. Business owners with personal bad credit will have a harder time getting a business loan with bad credit. 

I Have Bad Credit. How Do I Get a Bad Credit Business Loan?

If you’ve been rejected by the banks, don’t worry. There are a number of ways you can still access the capital you need to continue operating and growing your business. 

First, you can sometimes negotiate by providing collateral to back the loan. This could mean using collateral invoice financing, or equipment financing, in which you offer your equipment as a guarantee. You also have the option of using a co-signer, a process in which another person (with good credit) agrees to take on handling the payments if the primary borrower cannot. There is also the option of using a merchant cash advance, which you can read more about here

Depending on your credit score, you can also use alternative lenders as the source for your small business loans. Not all lenders are the same, but it’s possible to receive a bad credit business loan if the lender you choose is more interested in your personal story – on what your small business can achieve in the future rather than on what your score is.

For example, Lendified is a Canadian company that will review and process applications from a number of small business owners that may not have found an ideal partner in the big banks. As long as they meet the following criteria, they are eligible for a loan:

  • Incorporated business in Canada
  • More than six months in operation
  • $100,000+ in annual revenue
  • A 610 personal credit score or higher

I’m a Small Business Owner. How Do I Rebuild My Credit Score?]

There are a number of strategies that can assist you to rebuild your credit score. We’ve written about it previously here and here, but in brief, bad credit can be reversed by:

  • Making payments on time
  • Negotiate with creditors and communicating with lenders
  • Keeping your credit card balance low
  • Reducing credit card utilization (a ratio of 30% is often considered ideal)

In this way, even with bad credit, you can take steps on the journey toward better credit and eventually get a business loan that can help your company succeed. 

Try Lendified Today

Traditional lenders like banks and credit unions are more conservative by nature, and conservatism means taking fewer risks. They usually make it harder to successfully get a business loan because of strict eligibility policies. 

Not only that, but the big banks tend to move slowly. Because they demand more paperwork and documentation, even those businesses with above-average credit scores can find themselves better off using alternative lenders like Lendified. 

What are the benefits?

Lendified has faster turnaround times. After applying, you can be pre-qualified in just minutes. They also require less documentation. You can also get faster access to the capital you need. Once approved, you can have up to $150,000 deposited in your account in just 48 hours! Along with higher approval rates, what’s best about Lendified is that they’ll take the time to create flexible terms that meet your needs as a borrower. 

Not sure if Lendified is right for your business? Call or email us today!

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About the Author

Lendified

Lendified

Lendified is Canada's premier online lender for small businesses. The company was founded by former bank executives dedicated to provide businesses with fast, easy, and affordable financing. The Lendified team regularly produces blogs and guides to help small business owners succeed.

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