How To Get Funding With Poor Credit

Business Expansion, Business Guides

Jacques Famy Jr
Review By Todd Millman

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Less than stellar credit can seriously hinder your ability to get funding for your business, but it doesn't mean you're completely out of luck. While poor credit is certainly at the top of the list when it comes to missing out on affordable business financing opportunities, it doesn't completely inhibit your ability to get the capital you need today.

Poor or bad credit is defined as a credit score between 300 and 649. 

Although these low scores can be daunting for many business owners, there's actually a wide range of funding options available from alternative lenders. While funding from banks and loans from the Small Business Administration (SBA) are typically out of reach for those with poor credit, the online marketplace opens up doors for those with a less than stellar credit history.

So, what are your options?

How Does Business Credit Work?

When dealing with poor credit, you must understand how business credit works in order to change the tides. So, here's a breakdown of what goes into calculating your business credit.

  • Public Records County and State Search (Liens, Judgements, Bankruptcies)
  • Data Furnishers (DataMerch, Paynet)
  • UCC Filings (Financial notices placed on business when receiving financing on business)
  • Internet mining/searches for information about the businesses activities
  • Business Owner and Business Background checks
  • Small Business Financial Exchange and other bad merchant behavior sources

There are three main credit bureaus you should be aware of and familiar with.

  1. Dun & Bradstreet/PayDex
  2. Equifax
  3. Experian

7 Tips for Building Business Credit

If you want to build your business credit, there are a few ways to get the job done so that you can have access to more financing options down the road. You don't need to have great personal credit to do these either. You can build your business credit even with less than stellar personal credit. 

  1. Register your business as an LLC or corporation and file in the state you plan on doing business. If you want to build business credit, you can't register as a sole proprietor.
  2. Get a FEIN number or a tax ID. FEIN, also known as a Federal Employment Identification Number, is necessary to conduct payroll and file taxes for your business. Creditors can look up your business records and credit histories using this identification number.
  3. Open up a business bank account to separate your finances. Business lenders will look at your business bank statements, so it's imperative that you have one.
  4. Get a business credit card to build your business credit easily. You can do this when you open a business bank account; just make your payments on time!
  5. Use your vendors or suppliers to your advantage. You can inquire about credit lines for billing and see if they report to business credit reporting agencies to help you establish some credit rapport.
  6. Check for any errors in your credit report or inaccuracies. Make sure to contact creditors and offer up the right documentation to correct the mistakes. Don't take these errors lightly, as they can drastically affect your credit.
  7. Don't apply for too much credit too soon. This can unintentionally impact your credit score. While a few things here and there won't do too much damage, major credit asks can certainly hurt your scores.

Bad Credit Business Loans — Your Options

If you're struggling with poor credit, we have some good news. The transition of funding and financing institutions onto the online marketplace has opened up new opportunities for those dealing with credit issues. Today, you can get your hands on a wide range of bad credit business loans designed explicitly for the credit-impaired.

The bad news is that lenders have to secure their investment somehow, which typically comes in the form of paying a higher annual percentage rate (APR) to help cover their risk. Lenders use credit histories to evaluate the likelihood of being paid back. So, while you can discover funding opportunities for your business, you may end up with higher interest rates or incurring higher costs associated with a certain loan product.

Bad Credit Business Loans for You

Short-term business loans offer a sound solution for business owners struggling with low credit scores. They're typically smaller amounts than their "long-term" alternative and have fixed repayment terms of 6 to 18 months. Short-term business loan opportunities don't require a stellar credit score and have higher approval rates than many traditional loan options.

Merchant cash advances are a popular option for many businesses that rely on credit card sales for their revenue stream. Also known as a purchase of future sales agreement, merchant cash advances take a percentage of your everyday credit card sales until the advance is paid back. This gives you access to quick working capital when your business needs it most, even if your credit is poor. Business cash advances, which leverage your overall sales, are also a popular alternative.

Purchase order financing leverages verified purchase orders for quick cash flow. You can take advantage of entire orders or even portions of orders, and advance companies will pay suppliers and collect payment from the customers. While there are fees associated with these purchase order companies, it can be a great option for those struggling with credit.

Here are some quick tips for bad credit business loans:

  • Understand what your current credit situation is right now. Both personal credit and business credit can play a role, so get familiar with where you currently sit.
  • Don't go searching for loans that are out of your reach due to a poor credit score. Wasting time and energy with bank or SBA applications that don't even consider scores below 640 only takes away from time better spent looking for a realistic funding option for your current situation.
  • Make sure you have the necessary cash flow to support your loan payments. You'd be surprised how many businesses take out a loan without considering the capital needed to make payments on time. Have a plan — and stick to it.
  • Keep working on that credit score. Just because you're able to obtain funding with a poor credit score doesn't mean that you shouldn't keep working on boosting it. We'll give some tips and tricks later in this article to help you out.

If you're struggling with a less-than-perfect credit score, it's crucial that you understand your financial situation. Not only will this help you get the funding you need — but it will also put you in a position to pay back your business loan successfully.

Business Loans That Don’t Require Credit Checks

While most business loan products require credit checks, it's not a universal requirement. In fact, there is one option available that doesn't require any sort of credit inquiry.

  • Invoice factoring, also known as accounts receivable financing, gives business owners the ability to obtain cash flow from unpaid invoices quickly. These lenders advance your business money and collect it directly from the customer or client. The customer or client is actually the one who will get a credit check, as they're responsible for paying the invoice to the factoring company. There are plenty of invoice factoring companies in the online marketplace willing to help you make the most out of outstanding invoices.
  • Short term business loans typically require some credit checks, but not all lending companies are created equal. Those who do offer short-term solutions without a credit inquiry typically have higher interest rates or a factor rate tied in. For example, here at AdvancePoint Capital, we offer no credit check short term options. Qualifying for a short term business loan is much simpler than other funding alternatives in the marketplace.

What About Business Credit Cards?

While business credit cards aren't technically a loan, they are a funding option that business owners with poor credit can take advantage of today. While having less than stellar credit may hinder some of your options in the business credit card arena, there are usually options for a wide range of credit situations.

Don't Let Poor Credit Hold You Back

While we would recommend ignoring your personal or business credit scores, they shouldn't completely halt your business needs. There are plenty of ways to obtain the funding you need without great or even average credit scores.

Not all products are the same, so it's important to do your research when looking for a loan product or advance opportunity that works for your business — instead of against it. We get a lot of questions about business loans for bad credit, and we hope this article helped clear the air and offer some insights to struggling business owners out there.

No matter your current credit standings, there's no time like the present to start working on building your scores. Use some of our tips, make your payments on time, ask vendors about credit lines, and keep a close eye on your business finances to gain proper footing. Taking on a business loan product that you're unprepared for, especially if you have poor credit, can do far more damage than good. While it may be a short fix, it can cause long term issues that can topple your company.

Here at AdvancePoint Capital, we help businesses like yours succeed by offering a wide range of alternative lending solutions for those with bad credit.

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Jacques Famy Jr
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Jacques Famy Jr

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