Can I Get A Business Loan With Bad Credit?

Explore the many options open to you to get a business loan.

Updated: January 25, 2024
Matt Crabtree

Written By

Matt Crabtree

 

Turn your bad credit into business credit. Getting a business loan certainly is more challenging if your credit rating is poor, but it is not impossible. T

here are various avenues to take to secure a business loan for bad credit, even if you have a county court judgement against your name.

Around 10% of people in the UK have delayed starting a business due to having a low credit score. With the population of the UK reaching 67,761,212 in 2023, that equates to over 6,776,121 UK citizens missing their moment. Ensure you seize your moment and secure a business loan today, regardless of your credit rating.

In this article, we will explore the many options open to you to get a business loan, even with bad credit.

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1. Aspire Business Loans★★★★★Click Here
2. ClearFunder★★★★★Click Here
3. Liberis★★★★★Click Here

What Is a Business Loan?

A business loan is a financial agreement whereby a business borrows money from a lender. 

The business is responsible for paying back the loan in instalments over a set period of time. The lender will receive interest on the loan in addition to the original money borrowed. After just 1 year in business, 21.9% of businesses fail. It is at this point that a business might consider a loan to prevent bankruptcy.

Small Business Failure Rate
Image: Zippia

Generally, the smaller the business, the less likely it is that you will secure a loan. Business size is usually measured by the size of its workforce, so the higher the number of employees on your payroll, the more likely you can secure a loan.

Percent With A Business Loan
Image: Small Biz Trends

What Is the Purpose of a Business Loan?

The purpose of business loans is to raise funds for the business. This could be to support or grow the business.

The Top 8 Reasons You Might Apply for Business Loans

1. Startup Costs

When you start a new business, you will need a sum of money to get the business off the ground. Typical costs you may need to fund include purchasing premises, equipment, and materials, as well as hiring staff. Unless you are able to access funds by using your savings or other investments, a business loan may be the necessary choice.

2. Equipment Upgrades

From time to time, your business may need to upgrade equipment to improve efficiency with the latest technology. Purchasing equipment is usually a substantial cost and a reason why you might apply for a business loan.

3. Expanding Operations

If your business is operating well and generating a healthy profit, you may decide to expand. This could involve extending your existing premises to expand the current business or opening another site at a different location. Any expansion will involve substantial costs and so a business loan may be your choice of funding.

4. Working Capital

Your business’s working capital is the money it uses on a day-to-day basis to operate. This includes paying for your staff, purchasing stock, and paying rental costs for your premises. If your business is not making a sufficient profit, you may find it difficult to pay for such costs and consider applying for a loan.

5. New Promotions

When launching a new marketing campaign, the costs can soon add up. You will need to consider branding initiatives and different advertising strategies, perhaps employing a marketing team. Whilst new promotions can be costly, they can be a fantastic opportunity for the business to grow and attract a larger customer base.

6. Consolidating Debts

If your business has a series of debts, you might choose to consolidate those debts into one manageable payment. As a result, you may apply for a business loan to do so.

Debt consolidation can provide the business with a lower interest along with more favourable terms. It can improve the debt management of the business and provide a significant benefit.

7. Business Acquisitions

When your business is successful, you may want to expand by purchasing other businesses and integrating them with your own business. This is called acquisitions and can help a business to eliminate the competition and increase its hold over its market sector. However, such expensive purchases might require business loans to finance them.

8. Emergencies

It is wise for businesses to have a contingency fund to pay for emergencies and unforeseen circumstances. For example, the roof of your premises may be damaged after a storm and you might not be able to pay for it to be fixed. If your contingency fund is too low, you could apply for a business loan to pay for the necessary repairs.

How Can I Apply for a Business Loan?

Apply for business loans straight from the lender. Complete a formal application for a business loan and provide copies of all the necessary documentation. 

Your business’s credit score will be checked along with eligibility, business assets and checks with credit reference agencies. Run a business credit report now to view your credit history.

Business Credit Score
Image: Experian

Your business performance, asset finance and potential business plan may also be assessed. You could use the services of a business loan broker to provide additional valuable insight and guide you to approval, particularly is you have a very low credit score.

What Is a Bad Credit Business Loan?

Bad credit business loans are business loans tailored for businesses with poor credit.

Your credit score is measured by how much debt you have had in the past and how successful you were at paying the debt back. If you have missed payments, you will have a low credit score and may limit your finance options. Lenders will view low scores as a high risk.

Bad credit business loans are usually secured loans, with an asset such as property acting as security. However, if you default on your loan payments, you could lose the asset and damage your poor credit history further.

You could also face restrictions on the amount of money you can borrow or the overall terms of the loan. If you pay all instalments of your bad credit business loan on time, your business credit score should improve.

What Is an Unsecured Business Loan?

Unsecured business loans are not secured on an asset. A lender provides your business with a business loan with no asset as collateral. 

This means that if you default on your repayments, the lender cannot seize your asset. As a result, unsecured loans are much more challenging to apply for. Secured business loans, however, give the lender a guarantee and can be easier to apply for. 

If you fail to meet your commitments and default on your business loan, a secured loan gives the lender the power to take the secured asset away from you.

Are There any Other Options Available for My Business?

If you prefer not to apply for a business loan, you could see whether you are eligible for a grant, or to join a scheme.

Government Grants

If you need funds to start a new business, assess your eligibility for a government-backed Start Up Loan. You could apply for amounts between £500 to £25,000 to start or grow your business. Take a look at business credit cards for start-ups.

British Business Bank

Additional opportunities may be sought from the British Business Bank. The British Business Bank is a government-owned business development bank that provides opportunities for small businesses. 

You could apply for a merchant cash advance, or MCA, which offers short-term funding for businesses that accept debit and credit card payments.

Guarantor Loans

Furthermore, guarantor loans could offer an option for your business. You will need to find a guarantor with a good business credit score and credit report who will back you up for a loan. 

Guarantor loans provide the lender with a personal guarantee from the guarantor that they will repay debt payments if you should default. However, if you repay the debt in full, you could improve your credit score.

Bad Credit Business Loans Pros and Cos

If you have a poor credit rating and you are considering applying for a loan for your business with bad credit, equip yourself with as much knowledge as possible.

Check out this section for a complete overview of the pros and cons of bad credit loans for your business.

Pros

✔️ Eligibility — loans for a bad business credit score offer more flexible eligibility criteria. Standard finance and finding options for business are usually stringent in requiring a good credit history and proven business performance. 

Bad credit loans will consider a lower business credit score and default in your credit history.

✔️ Flexibility — standard loans for small businesses may provide strict criteria of what the loan cash can be used for. For example, the loan money may only be used for an expansion. 

However, the money raised from bad credit business loans may offer your small business greater flexibility. You could use the loan amount to address credit issues, implement credit improvement, and improve cash flow for example.

✔️ Fast funding — you may be able to receive funding faster when securing a loan with bad credit. 

A standard loan may take several weeks to be approved and to clear in your business bank account. However, bad credit business loans usually transfer the money to you quicker.

✔️ Improve credit — a poor credit score can be a problem for a business. However, if you pay your loan repayments on time and in full, you could start to improve your poor credit score.

Cons

❌️ Higher interest rates — the main disadvantage of a business loan for bad credit is the higher interest rates your will need to pay. 

A lender will charge you a higher interest rate to mitigate against the increased risks of your bad credit score and previously missed loan payments. 

This will cost your business more money in repayments although is sometimes the only option when accessing business funding and bad credit loans.

❌️ Shorter terms — bad credit loans may come with shorter repayment terms. This is due to the higher risk the lender perceives, requiring faster repayment of bad credit loans. 

Shorter repayment terms will mean higher monthly payments, however, as you are paying back the loan over a shorter time. 

❌️ Limited amounts — bad credit loans are typically limited to smaller amounts of cash. Again, this is limited due to the risk the lender perceives due to your bad credit score.

❌️ Scam threat — loan scams are prevalent, particularly for individuals and businesses with bad credit. Scammers view those with bad credit as vulnerable to less reputable lenders seeking business funding. 

However, there are reputable lenders out there but it is essential that you are aware and conscious of the threats.

Best Bad Credit Business Loans — Reviews

Take a look at the best bad credit business loan options currently available. Ensure any loan you apply for is covered by the FSCS, however, so you can look after your finances.

1. Aspire Business Loans — Great All-round for Businesses

  • Minimum loan amount: £5,000
  • Maximum loan amount: £300,000
  • Same day decisions
  • Repayment terms: 1 year to 5 years

Representative example — when borrowing £5,000 over 5 years, you will pay £106.58 per month. The total amount payable is £6,575.

Aspire Business Loans is a loan broker that offers bad credit loans from £5,000 to £300,000. You can choose repayment terms between 1 year and 5 years and you can gain a same-day decision.

To apply for a bad credit loan, your business must possess at least 6 months of trading history and evidence of its financial performance. Costs and fees are transparent so you can make a fully informed decision.

2. ClearFunder — Great for Short Term Business Loans

  • Minimum loan amount: £10,000
  • Maximum loan amount: £100,000
  • 12-month typical repayment term
  • All circumstances considered

Representative example — when borrowing £10,000 over a 12-month period, you will pay £51.59 per working day. The total amount you will pay across 12 months is £13,000.

Clear Funder offers short-term business loans across 12 months. You could raise funds of £10,000 to £100,000 if lower funds need to be raised for your business. Clear Funder considers all circumstances and offers easy-to-understand repayment quotes, calculated across working days.

3. Liberis — Great for Larger Loan Amounts

  • Minimum loan amount: £1,000
  • Maximum loan amount: £1 million
  • Funds received in 48 hours
  • Fixed fee

Liberis is a good loan provider for amounts up to £1 million. Repayments are customisable and work in sync with your business’s performance.

Loan repayments are judged in line with the cash flow of your business, helping you to pay more when your business is making more money. 

You can pay a smaller amount when you need to pay a larger amount off the loan when you can. You can receive the loan amount in up to 48 hours whilst paying one fixed fee, regardless of the loan amount or conditions.

Leading Business Loans for Bad Credit: The Verdict

If your business credit score could do with some work due to patchy credit history and county court judgements, you will find it difficult to secure a loan from a traditional lender.

You do have other options, however. Apply for a loan for your business despite your bad credit and assess the finance choices you can apply for.

Additionally, assess your eligibility for government grants and other options from the British Business Bank, making your finances work for you.

Taking a loan is a big step so ensure you are fully aware of all risks involved as well as the benefits. However, applying for the right type of loan to build business credit can help you to grow and succeed in business.

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