How to Get a Small Business Loan With a Bad Credit Score

As a small business owner, you may have experienced (or are currently experiencing) issues with your business’s finances. Don’t worry, you’re not alone. This isn’t new or exclusive to a certain type of business or industry – with uses of funds ranging from expansion & renovation, working capital, equipment purchase or hiring new employees – most new small business owners have needed help funding their business at one point or another. But many business owners find it difficult to get approved for a small business loan due to a poor personal or business credit score.

Many big banks and other traditional lenders are not willing to take the risk associated with lending to small businesses who have bad credit scores. But this doesn’t mean you should give up on your dreams of starting a small business or growing your current one! There are still options to receive the funding you need and get your small business rolling.

Here are a few solutions for you:

1 – Re-evaluate your business finances

There are a number of questions you can ask yourself while re-evaluating your business finances:

  • What are your current financial needs?
  • What are you planning on doing with the loan?
  • How do you want to pay it back?
  • Can your plan be accomplished with a regular loan or a smaller loan?

If you are a small business owner who has bad credit, you’re most likely concerned with getting rejected when trying to access the financing you need to grow your business. This is a valid concern, because many lenders do not lend to businesses with bad credit. So the best thing is to answer the above questions truthfully, then contact a potential lender to discuss your current credit situation and ask about alternative options such as smaller loans.

2 – Look into government funding programs

The government of Canada runs the Canada Small Business Funding Program that has helped small businesses, for many years, gain access to working capital. Unlike many lenders, the funding they provide isn’t only for established businesses, they also help start-ups get the funding they need to get their business up and running. Established businesses can use the funding to expand, make improvements, and renovate.

3 – Consider Merchant Cash Advances

This is a good option if you’re only looking for a few thousand dollars to fix your cash flow issues. MCA lenders provide you with a sum of money in exchange for your future sales to repay the advance. The way you pay back is through credit card sales. Basically every time your business is paid with a credit card, a small percentage of that sale goes towards repaying the cash advance. This continues until the cash advance is fully paid off.

Since MCA lenders are not covered under the same laws and regulations as banks, their interest rates can be very high. However, they do provide access to the funding you need quite quickly. If your business cannot qualify for a regular small business loan, this is a great option.

4 – Look into alternative lenders

If you have been rejected for a small business loan from banks or other traditional banking institutions, you should consider an alternative lender. They are often more lenient with their qualification criteria and don’t usually check for credit histories and scores. There are a number of private lenders in Canada that want to help you get the funding you need. It’s best to conduct extensive research and talk to other small business owners who have obtained a loan through these lenders, so you’re prepared for their application process.

5 – Improve your credit score in 4 steps

There are many loan options out there if you have a bad credit score but still need some financing to expand or grow your business. But don’t forget that having a good credit should be your main priority, as it will allow you to access business loans at the most affordable rates. If you have a poor credit score, don’t worry, there are many ways to improve your business credit score.

Three of the easiest ways to improve your business credit score

1- Pay bills on time – Do whatever necessary to make your payments on time. You can set a reminder on your phone or set up automatic payments, in case you forget. Keep in mind that any late or missed payments on your credit accounts will have a major negative effect on your business’ credit score. When you start making your bill payments on time, you begin working towards correcting the negative effect your previous missed (or late) payments had on your creditworthiness.

2 – Use your credit cards wisely – Having a business credit card is actually a great tool to build up your credit score, it can also create issues if used irresponsibly. My advice? Only use it to pay for things that you absolutely need for your business. It’s not free money, as you have to pay it back and on-time.

3 – Dispute any errors or inaccuracies on your credit report – Check your business credit report often, and if you notice any inaccuracies, you can work with credit reporting agencies to get them removed. It’s very important to make sure all the information on your credit report is up to date and accurate. Unpaid accounts and hard inquiries can negatively affect your report and overall creditworthiness in the eyes of lenders. So if you come across something that shouldn’t be there, dispute it immediately.

It can be difficult to gain access to the capital you need to grow your small business; especially if you have a bad business credit score. The good news is, there are lots of options out there for you. Do your research thoroughly and find an alternative lender who is flexible and wants to truly help you get the working capital you need.