Originally published Apr 19, 2017. Republished September 28, 2018.
It's hard enough to get business credit when you have zero debt and perfect credit. If you're struggling with high-interest debt and your credit score has taken a hit, getting approved can seem impossible. However, because a debt consolidation loan can slash your interest payments and help you catch up, it's important to not give up. And even with bad credit, you do have several options available.
Banks and Credit Unions
Banks and credit unions are the most widely known option, but they also have the toughest standards. Because of risk-based pricing, the more risky they perceive your business as, the higher the interest you'll pay. If you have heavy debt and a below-average credit score, you can expect to pay the highest interest rate, if you get approved at all.
One option they might give you is to take out a mortgage on your personal residence, your business location or your business equipment, but you might not be willing to put these assets on the line if your business is struggling. Another option might be opening a secured credit card, but that usually requires a deposit that you're better off applying to your debt.
If you're taking a paycheck, a payday lender will almost certainly approve you for a cash advance. However, these loans have astronomical interest rates, and you probably won't be able to borrow enough to make a dent in your business debt.
Save these loans for when your only other option is going out of business.
Debt Relief Companies and Consumer Counseling Agencies
Debt relief companies and consumer counseling agencies both help you to negotiate more favorable payment terms or lump-sum settlements for less than the amount you owe. The difference between them is that debt relief companies are for-profit, while consumer counseling agencies are not-for-profit.
Lenders are often willing to work with these companies because they may feel they won't be repaid at all if they don't. However, your accounts will rarely stay in good standing if you follow this route. The debt may reflect as being charged off or settled on your credit report, therefore lowering your credit score. Even if your credit score isn't harmed, any lenders you didn't repay as originally agreed are very unlikely to do business with you in the future.
Debt Consolidation Lenders
Debt consolidation lenders specifically work with businesses with heavy debt and bad credit. They help by combining your current debt into a single monthly payment. This may lower your monthly payments if you take a longer-term loan, and in some cases you may be eligible for a lower interest rate than you're currently paying.
Debt consolidation loans may be easier to obtain than other loans, but there are a few things to keep in mind. Debt consolidation loans are not a way to add existing debt, and many debt consolidation lenders insist on paying your current lenders directly rather than issuing a check.
You'll also need to prove your ability to repay the loan. As an alternative to reviewing your credit score, the lender might look at your bank deposits or credit card purchases. If you or a business partner has strong personal credit, they may also accept a personal guarantee to cover any debts your business isn't able to.
Original Funding offers flexible debt consolidation loan options and several ways to help you qualify. To learn more, start your application or contact us to speak with a loan specialist.