Introduction
Did you know that even if you have bad credit, you could still take out a business loan?
Or that you could even improve your credit score with the right loan?
In this guide, you’ll find out about getting a loan with bad credit, including explaining what bad credit is, whether you should take out a loan and what your options are.
What’s in this guide?
Take a few minutes to look over this guide before you make any decisions.
Top 5 bad credit business loan providers
1. Boost Capital
Type: Alternative Finance Provider
Loan amount: £3,000 – £500,000
Typical APR: 1.5% – 2.5% monthly APR
Loan term: 4 to 18 months
Boost Capital is a highly recommended alternative finance provider in the UK, with many customers giving this lender five stars on trusted websites such as Trustpilot.
They offer fast funding, with minimal paperwork, approval in 24 hours and access to your funds in around two days.
Representative: Borrow £10,000 for 12 months at 47.9% representative APR. Interest rate of 36.74% p.a. (fixed). Total amount payable is £12,100.
Company rating on Trustpilot: 5 / 5
2. Capify
Type: Alternative Finance Provider
Loan amount: £3,500 – £500,000
Typical APR: 67.89% APR
Loan term: 6 to 10 months
Capify is another highly rated lender, who has been around since 2008 and they have helped thousands of business owners to grow and sustain their business.
Focused on small to medium enterprises, they aim to give you a decision within 60 seconds and solutions tailored to your business.
Representative: Borrow £24,000 for 12 months at 67.89% representative APR. Total amount payable is £29,472.
Company rating on Trustpilot: 5 / 5
3. Funding Circle
Type: Peer-to-Peer Lender
Loan amount: £5,000 – £500,000
Typical APR: Rates start from 4.5% per year AER
Loan term: 6 months to 5 years
Funding Circle is one of the peer-to-peer lenders that have been sprouting up around the UK in the last few years.
With a peer-to-peer platform, the lenders are regular citizens that want to help their savings grow by investing in UK businesses.
For businesses, this means low AER and only a couple of extra fees.
Representative: Borrow £20,000 for 12 months with fixed monthly payments of £1,752 a month, with a completion fee of 2.5% and interest of around £526. Total amount payable is £21,026.
Company rating on Trustpilot: 5 / 5
4. Shawbrook Bank
Type: Bank
Loan amount: £250,000 to £25 million
Typical APR: 0% to 19.9% APR
Loan term: Bespoke repayments
Shawbrook Bank offers their business customers a range of services tailored to their companies, like asset finance, working capital solutions, the point of sale finance and structured finance, as well as commercial mortgages too.
This means that for startup businesses you could finance for the road ahead with equipment and salaries, or even established companies can benefit from more substantial amounts to help you fund expansions.
Company rating on Trustpilot: 5 / 5
5. Government Startup Loan
Type: Government Loan
Loan amount: £500 – £25,000
Interest: Fixed 6% interest p.a.
Loan term: 1 year to 5 years
Government loans are loans that are funded by government-backed organisations, who usually offer either regional or national businesses different loans depending on their location.
With this loan, in particular, it is aimed at startups less than 24 months old who could benefit from not only finance but mentoring, to help your business grow and thrive.
Representative: Borrow £20,000 for 12 months with fixed monthly payments of £1,721.33 a month, with interest of around £655.94. Total amount payable is £20,655.94.
Company rating on Trustpilot: 5 / 5
The top five business loan providers take into consideration their customer reputation, the amount you can borrow and the typical APR or interest rates, to ensure that you’ll be getting the best deals for you and your company.
FAQ
What is bad credit?
First of all, let’s find out what bad credit is.
After all, it’s hard to know what’s stopping you from getting a loan without understanding the relevant parts.
So, your credit score is a record that is used by third parties to track your debts, your details like whether you are on the electoral roll and your credit cards.
If you have a bad credit score, it might be because of something simple like you’ve never had a credit card, or you aren’t registered to vote at your address.
Or, it could be something more unfortunate like you’ve got a lot of debt that you haven’t been able to pay off.
There are companies like ClearScore that ‘coach’ people for free about how they can improve or repair their credit score.
Typically, they offer you a simple checklist to go through to increase your credit score, which can increase it exponentially.
Should you take out a loan with bad credit?
So, now that you know what bad credit is – should you take out a loan?
The best way of improving your credit score is to prove that you can pay off any money that you borrow.
In that respect, taking out a business loan could be an excellent way of not only increasing your cash flow but also proving that you can pay your debts.
On the other hand, if your projected earnings mean that you probably wouldn’t be able to make your repayments or even risk potential bankruptcy, you should not take out a loan.
This is where it gets a bit complicated; mostly, if you are looking to improve your company than a loan might be beneficial.
But, if it’s going to ruin your business, then you need to run a full analysis to make sure you’re making the right decision.
What do I do if I have bad credit?
Unfortunately, more often than not, your local bank will often reject your application if you have a poor credit score.
But, it is important to remember that you should still try your bank first, mainly if your relationship is excellent.
This is because banks generally offer the best rates, plus they often either don’t have arrangement fees, or they are very low.
Many alternative finance providers offer companies that were rejected by banks another chance, so it is essential to compare all of your options before making a solid decision about your finances.
Take a look at the government website to find out more, there are many choices available to companies of all sizes.
Alternatives to loans
Businesses can also consider alternative loan options.
These types of loans can be more expensive than banks, especially with the extra fees that they might charge, so you should try and find options that will help you to repair your credit score.
Peer-to-peer lenders like FundingTree or Funding Circle allow ‘investors’ to invest in your business, with a credit agreement in place that will help you to fix a bad credit score.
But, these interest rates will likely be very high due to the fees and costs involved.
This means it is very hard not to make payments, which is why it is available to businesses with a low credit score.
Typically, you will be able to borrow a few times your revenue on a monthly basis.
Top tips
- Discover alternative lenders, so if your bank says no, don’t stop looking!
- Use your financial projections in your business plan when you don’t have the revenue to back your application up.
- Use your assets when you don’t have the credit score for an unsecured loan.
- Lower the risk to your lender by applying for a smaller amount of funding.
Keep looking
If you approach your bank and, unfortunately, they decline your application, that doesn’t necessarily mean that you’ve hit at the unbeatable hurdle.
There are many alternative finance providers out there that have specialised in offering loans to businesses that have been rejected elsewhere.
Financial projections
If you are turning a business around that may not have had a profitable year, or you are a new business starting, you can use your financial projections to show potential lenders how and why you are a perfect candidate for loans.
Sometimes, having a bad credit score can cripple businesses, as traditional lenders such as banks tend to use this as the deciding factor when considering an application.
Assets
Luckily, there are loans known as ‘secured loans’ which allow businesses to put up assets as collateral, which makes lenders far more likely to give you a loan.
The negative side of this is that of course if you don’t make your payments your home or another asset may be repossessed.
That’s why it’s important to make sure that you need a loan before you apply, but if it’s a necessity and you know you can make back the repayments, secured loans can be beneficial.
Borrow a smaller amount
Finally, you should consider whether you should be borrowing a smaller amount of funding.
While you may have worked out how much you need, whether it’s for salaries or new equipment, or perhaps a new premises or to keep a healthy cash flow, you should decide whether you could live with less.
After all, you could potentially go to the same lender again in a worst case scenario, but asking for too much could either end with a declined application.
Or, you won’t be able to make your repayments.
Conclusion
In conclusion, even if you do unfortunately have bad credit, there are options available to you.
You could either decide to work on your credit score before you make an application to better your chances of being accepted, or you can take a look at which lenders are available to you right now.
This could either be a bank, peer-to-peer lending or alternative finance providers, so why not consider all of your choices?
Take a look at ExpertSure to find out more about business loans, phones and anything related to your business.
