Bank lending requirements for small businesses have been improving, but challenges remain. Many small businesses are still growing and are struggling to improve their credit histories. Unfortunately getting a business loan with poor credit is difficult because traditional banks are not willing to gamble on these small business owners, leaving them suffering from lack of capital.
There are several reasons that many small businesses could be suffering from deficient credit histories. During the 2009 and 2010 downturn, many companies fell behind in vendor payments and were not able to quickly correct their payment issues. Unfortunately, poor credit can take months, if not years, to fix.
There are several financing options that business owners may apply for when suffering from poor credit scores.
Getting a Business Loan with poor Credit
- Merchant Cash Advance – This short-term loan is advanced to the business owner in a single lump sum. The business owner then allows the merchant cash advance company to access a portion of the business’ future credit card sales. Companies that participate in these types of business cash advance can quickly receive access to cash without providing substantial collateral or having near-perfect credit scores. Some lenders that offer working capital loans can approve funding requests and provide money in as few as two to seven days. Business owners should note that interest rates are higher than those offered through traditional lenders.
- Business Credit Cards – Some business credit cards can offer business owners that have poor credit histories direct access to debt financing. Business owners can open a credit rebuilding credit card, which can help repair previous damage.
- Microloans – These types of loans are made by non-profit organizations, which offer small loan grants up to $50,000. These microloans are intended to help minorities and women owned startups that are located in established empowerment and economic zones. The Small Business Administration’s Microloan Program also offers loans via non-profit community-based intermediary lenders.
There are some measures businesses can take to assess their credit scores. Credit rating agencies examine the following when determining businesses’ credit scores:
- Business structure
- Company size
- Industry risk
- Outstanding accounts and payable balances
- Payment habits and credit utilization
- Length of credit history
- Public records, such as judgments, liens and bankruptcies
- Other factors
To further help companies’ legitimacy, owners may wish to consider incorporating their businesses’, especially when setting up utilities and such. This helps establish professionalism for establishing small business loans and business lines of credit.