Bad Credit Business Loans: A Good Thing

bad credit loans for businessIt may be called a bad credit business loan, but that does not mean it will be bad for your business. In so many ways any type of business funding can help a business grow and achieve success. Learn why a bad credit loan could be a good thing for you.

Dispelling Myths about Bad Credit Business Loans

A business loan with bad credit does not mean that you are getting a bad product. And, in the lending world, the term bad credit has a different meaning.

If you have been told by a traditional bank that you will need to apply elsewhere for a bad credit loan, they might not have been referencing your credit score. Even business owners with good scores can fail to qualify for a traditional loan. That is because the requirements at a bank, such as time in business and your industry, can be quite strict.

In this instance, bad credit could be more accurately stated as “fails to qualify at a bank.” It does not mean that you are a poor business person, or that your person is failing. Quite successful businesses would not qualify if, for example, they were in the restaurant business. Reasons you could be denied include;

  • Less than two years in business
  • Applying for a loan for less than $1 million
  • Poor credit score
  • Industry type

Bad Credit Business Loans Help Business Owners

The lending market developed the bad credit business loans to serve business owners who were unable to access capital through a bank. These products fill an important need which supports small business growth.

While you could borrow from friends and family, eventually those sources will run dry. And you risk hurting your relationships with them. Microloan are also an option, but you might not get a loan in the amount you need. The average microloan granted by Accion, a major microloan provider, is just $6,000.

Alternative lenders grant bad credit business loans in amounts ranging from $5,000 to $1 million. The average loan size for alternative lenders was $80,000 in 2017.

How Bad Credit Loans can be Good

A bad credit business loan can be a very good lending product for your business. Here are some key reasons why.

  • Availability and Ease – Alternative lenders have the funds available to borrow, and you can easily access capital. Borrowing from them is an easy process. The approval process can take as little as 24 hours and you could receive funds in a few days.
  • No Funding Cap – Many microlenders simply cannot lend more than $50,000, most can only offer much smaller amounts. Their loans are capped.
  • No Hidden Fees – While a bank may quote you a simple interest rate, you could end up paying much more for your loan. They could charge multiple fees along the way, from underwriting to loan approval fees, which significantly raise your cost of capital.
  • No Prepayment Penalties – When a traditional lender grants a loan they have built their profit into the fees and interest rates. If you pay it off early, it reduces their profit. For this reason, many lenders put prepayment penalties in their business loan’s terms. Essentially, you are punished for paying a loan off early. There are many alternative lenders do not charge prepayment penalties, just discuss your business loan options before applying.
  • Consider more than Credit – Alternative lenders know that sometimes your credit score reflects past lessons you learned about financial management. It is not the sole indicator of your ability or willingness to repay a loan. Their underwriting process looks more at your monthly revenues, requiring a minimum of $8,000 for approval, and other factors.
  • Establish Credit – A lack of credit history can also prevent you from borrowing. If a bank has no way to verify that you have repaid credit in the past they view you as a riskier borrower. Borrowing and then repaying a loan can actually help you build credit.

Taking out a bad credit business loan to meet your capital needs could fund an expansion, help with cash flow, or consolidate higher interest debt. Whatever your goals are for borrowing, Shield Funding will help you meet them. Reach out or apply online today.