Business loans with bad credit: what's possible and what to expect

A poor credit record can make a business owner feel shut out of funding altogether. It does make things harder. But "bad credit" covers a wide range of situations, and lenders don't all treat it the same way.

What lenders mean by credit history

For a small business, lenders usually look at two things:

• The business's credit file, including payment history with suppliers and any existing borrowing.
• The directors' or owners' personal credit files, because small companies are often closely tied to the people running them.

Things that commonly count against an application include late or missed payments, defaults, county court judgments (CCJs), and in more serious cases, insolvency in the business's or director's past. These typically stay on a credit file for around six years from when they were recorded.

Why the type of finance matters

A standard unsecured loan leans heavily on the credit record. Other types of funding lean on different things:

• Secured lending is backed by property or other assets, which can matter more to the lender than a past blemish. The trade-off is that your property or assets could be at risk if you can't repay. See secured vs unsecured business loans.
• Merchant cash advance looks mainly at your recent card takings, because repayment comes out of them. It can cost more than a conventional loan. See how a merchant cash advance works.
• Invoice finance is tied to the invoices your business has issued and the credit strength of the customers who owe them. See customers paying late.
• Asset finance is secured on the vehicle or equipment being bought. See asset finance.

No type is easy for everyone, and each has its own conditions.

What to expect

• Higher cost. More risk for the lender usually means a higher price, so the total repayable matters more than the monthly figure.
• More security or a personal guarantee. Lenders may ask for assets as security or for a director to guarantee the debt personally.
• Smaller amounts or shorter terms. The offer may be less than you hoped for.
• More questions. Lenders often want to understand what happened and what has changed.

Things some businesses find helpful

• Checking your own reports. Business and personal credit files can contain mistakes, and a correction can change a decision.
• Explaining what happened. A clear account of what went wrong and what's different now carries weight with many lenders.
• Paperwork in order. Recent bank statements and accounts show how the business is trading today. See documents for a business loan.
• Timing. Recent, healthy trading can count for a lot, and the effect of older problems fades as time passes.
• Many applications at once. A run of rejections can leave a trail on your file. See turned down by your bank.

The cost

When credit is poor, funding tends to cost more, so the details matter: the total repayable, any fees, what is secured, and whether a guarantee is involved. Any fee should be clear before you go ahead. An accountant can help with whether the figures work for a particular business.

Getting help comparing

We're a commercial finance broker, not a lender. We introduce your business to the lenders on our panel, so you can see which might consider your circumstances without applying to each yourself. It's free to check, and any fee is confirmed before you proceed. We can't promise any outcome, and all funding is subject to eligibility and credit assessment.

You can check your options in a few minutes, with no obligation.