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Can you get funding for business with bad credit?

Yes, it is possible to get funding for your business if your company suffers from a bad credit history. Traditional mainstream lenders such as banks may not be willing to lend to you, but there are alternative options available.

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Before you borrow money, you should have a look at your credit history and take some steps to repair it if necessary.

We have a look at credit history and your borrowing options:

  • Credit scoring
  • How to fix your credit score
  • Bad credit funding options
  • How do I know which is the best funding option for my business?

Credit scoring

When you apply for a loan your lender will apply to a credit reference agency such as Equifax or Experian for a check on your credit worthiness. This is a numeric value calculated using various criteria. The higher your credit score is the more likely you are to get your funding.

The credit reference agencies receive data from lenders which will include information on how you have managed previous loans, county court judgements, winding up orders, financial performance, and company directors’ history.

Credit reports are held on file for a period of six years and are updated on a monthly basis. Numerical scales vary between reference agencies: The Equifax scale runs from 0-700 where a score of less than 650 is considered poor and anything between 650-700 is fair to good. Experian’s scale is 0-999. You should be looking for score of 720 or above. Anything below that is considered poor.

Before you apply anywhere for finance it’s a good idea to check your credit score. You can apply to one of the credit reference agencies to find out.

How to fix your credit score

Make sure you check your credit rating regularly and ensure that you address any errors on your records as quickly as possible.

Pay your bills promptly and maintain any credit payments – late payment will affect your credit score, more so if lenders have to take legal action against you to recover late payments.

Develop good credit relationships with your suppliers and maintain payments. This will have a positive effect on your credit score.

Keep credit accounts open, even if you have paid them off. Having no credit history makes it hard for lenders to judge risk, which will also have a negative effect on your credit score. Having some credit will help you take on more but don’t overstretch yourself.

Maintain regular payments and avoid legal action and county court judgements like the plague.

Bad credit funding options

So, how do you get funding for business if you have bad credit? There are a number of options available to you:

  • Bad credit business loan
  • Start-up loans
  • Secured loans
  • Government grants
  • Guarantor loans
  • Equity crowdfunding
  • Peer-to-peer lending

Bad credit business loans

There are specialist lenders coming to market which offer unsecured business loans without the need for a perfect credit score. However, the decision to lend to you will be taken based on the performance of your business, not just your credit score. So, you will need to have some trading history behind you. Most lenders will need to see that you have been trading for at least two years before lending to you.

Start-up loans

If you’re starting out and you have no trading history, you may be able to get start-up loan. A credit check will be undertaken and if you are bankrupt or filing for bankruptcy you will not be get your funding.

Secured loans

If your business has assets you may be able to secure a loan against their value. Assets could include commercial property, vehicles, machinery, equipment or technology. This kind of loan could be cheaper than other options because there is less risk for the lender.

Government grants

These are an alternative to loan. The government is helping small businesses with funding without the expectation of repayment. However, applying for grants is time consuming and complex so you may want to seek the help of an expert.

Guarantor loans

This is where a friend or family member assumes the responsibility of guaranteeing repayment of the loan should you default on repayments. With guarantor support you may be able to secure up to £15,000 from lenders.

Crowdfunding

You can apply for funding via an online platform whereby a group of individuals contribute funds to your business in return for a stake in your company. It’s an increasingly popular form of finance and great for small start-ups looking to get off the ground, but you’ll still need to do your research. There are lots of crowdfunding sites out there and the rules will differ from one to the next.

Peer-2-peer

P2P websites are online marketplaces which bring together people or businesses that want to lend money to borrowers who are seeking loans without going to traditional banks. Some websites divide a lender’s money between a number of borrowers while others allow lenders choose who they want to lend their money to.

How do I know which is the best funding option for my business?

Because the range of funding options and the processes to apply for them can be immensely complex it’s a good idea to talk to experts who can guide you to the best funding option for your business goals.

A good broker or intermediary doesn’t just help with funding, finance and investments. They will also get involved in business planning and credit management too.

To find out more about business loans call one of our experts today on 0203 327 0567. We have access to over 600 sources of funding, covering debt and equity. We’re confident we know how investors work and what they are looking for.

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