Having a poor business credit history could hinder your efforts of being approved for business loans. This is especially true if you go through the more traditional channels such as bank loans. Last year, the big banks approved just 24.1% of small business loans. A credit file working against you can seem like an uphill struggle; however, there are things you can do to improve your chances of approval and to obtain the funding you need to take your business to the next level.
You would be mistaken if you thought you were the only business dogged by bad credit. Poor credit history is one of the most common reasons why businesses fail, since it causes difficulties as they try to move forward with minimal capital. The financial crisis in 2007 also caused banks and other financial organizations to review their lending criteria and tighten their application process. The fact remains that smaller businesses still experience more difficulties obtaining credit than larger businesses, even with excellent credit ratings.
There are a number of ways you can make your business more appealing to lenders and gain approval for business funding.
Merchant cash advance: A merchant cash advance can help you access cash upfront in exchange for a percentage of your future credit card sales. A merchant cash advance could be the sensible solution if you are struggling with bad credit but have a good stream of regular credit card sales.
As with any financial product, it is worth doing your research before you select a particular lender. For example, some merchant cash advance providers will ask for just 12% of your credit card sales, while others could charge as high as 38%.
Revenue-based loans: If you receive regular deposits in your bank account, you could put this cash flow to work through a revenue-based loan. Do you need cash in a hurry? These loans are usually quite beneficial because funding can be transferred in as little as 7 days. Revenue-based loans are based on the amount of money you have deposited in your business bank account every month. Most loans offer a business 10% of its annual gross deposits, even if the business has poor credit.
Keep in mind, these loans are often more expensive than traditional bank loans and can have loan terms last as long as 18 months. However, you won't need to supply any financials, tax returns or collateral with this type of loan, and repayments are made in small daily increments directly from your business bank account.
Using a credit partner: There is a fair amount of trust involved with the credit partner solution, but it can work well once a good level of trust has been established. By using a business partner as a credit partner you may find it easier to obtain lines of credit. If your business partner has a good credit history, you could work together to take advantage of their good standing for the good of the business. Whether you need a loan or business credit card, know that a credit partner can co-sign alongside the business to obtain the credit.
If you have bad credit yet manage to secure a small business credit loan, make sure you learn from any past mistakes and use your "second chance" responsibly. No matter how your credit blemishes were acquired, it is never too late to start repairing the damage. Once you are back in good standing, you can start to access more traditional lines of credit at lower rates, whenever you need the funds.