Instant Business Loan on Poor Credit
admin March 14, 2022

Getting business loans involves multiple credit checks and other important proceedings before finally getting approved. And when a business has poor credit or no credit history, securing one is ever more challenging. The same question may have crossed your mind more than once –

Do small business loans for bad credit exist? 

You can secure a business loan even if you have bad credit or no credit if you own a business in the UK.

However, it has certain terms and conditions, and not every business qualifies for quick business loans with no credit checks in the UK.

What is Bad Credit on Business Loans?

Bad credit is when a business cannot meet payments on time and hence has penalties and other things mentioned in the credit report. A creditor considers a business’s affordability before granting them approval on the business loans.

If a business has a poor or bad credit history, it might cancel or disapprove of the same. The credit history includes the amount and the promptness to pay the debts. Apart from this, it also shows the debt history of the borrower and the length of the credit history.

Therefore, lending business loans for start-ups involves multiple checks and security if needed. In addition to poor business credit, there may be other reasons as well:

  • CCJ on the credit report
  • Bankruptcy
  • Late payments
  • Credit card default or late payments
  • A large number of pending loans

These reasons could also affect the approval of business loans.

Aside from this, some creditors also approve funds based on personal credit. However, business and individual credit are entirely different. Lenders consider both as a part of affordability checks. When a business seeks a small business loan, this factor is important.

So, the more stable your business is, the more chances you have to secure small business loans for bad credit. It is, therefore, important to have and maintain a good credit score to secure funds quickly.

Is It Possible to Secure a Business Loan on Poor Credit?

Yes, it is possible to secure business loans for startup with bad credit. However, it will then be available at high-interest rates. A business with no credit history and credit score cannot create repayment trust in the eyes of a creditor and is therefore denied a loan.

Both the borrower and creditor stand at risk in this situation. If a business applies for many loans with several lenders, it affects their credit score and lending capacity.

The best thing to do here for securing a business loan with poor credit is to improve your credit score. You can improve your credit score by avoiding too much credit card usage, paying payments timely, and refraining from taking quick business loans with no credit check in the UK. 

How can a business get approved for a business loan on bad credit?

If you direly need business loans and do not have good credit to get approved with traditional business lenders in the UK, you can consider the following solutions:

a) Re-write the business plan

A poorly written or incomplete business plan often reduces the chances of securing a business loan. Thus, if you are seeking a business loan on poor credit, re-define your business plan with growth-oriented figures and vision to convince creditors of your business’s potential. Help the creditor consider the repayment aspect instead of a well-defined business plan that promises good returns.

b) Set up a collateral

It is one of the last options that a business should consider for small business loans for bad credit. Setting up collateral is something that guarantees the creditor of your repayment of the loan. However, as it is a secured loan, the business risks losing the collateral if it cannot repay the loan amount. Equipment, dividends, company profits, equities, etc. These are all examples of assets. Therefore, this option is highly risky for business owners.

c) Guarantor on the loan

Getting a guarantor on a business loan can help secure loans easily. However, it can be a major decision for both the business and the guarantor. A guarantor on a business loan is someone who agrees to pay off the remaining repayments if the business falls short of funds. Here, the guarantor and the creditor both stand at risk.

Thus, be mindful of choosing a guarantor for your business. The creditor considers the guarantor’s credit score and history and the borrower’s credit history before granting loans on poor credit. If the borrower and guarantor cannot meet the repayments, the lender could report the same to credit agencies, and the credit report will reflect the same. It affects the credit score of the guarantor.

d) Credit Unions

If you cannot secure credit through any of the options mentioned above, you can try securing one through credit unions. Credit Unions, regulated by Financial Conduct Authority (FCA), lend sums at an affordable interest rate to members.

However, these credit unions conduct a soft credit check and access the income and savings of the borrower before lending funds. Credit unions provide different business loan types, instalment loans, business loans for start-ups, lines of credit, business credit commercial mortgages.

Apart from this, some credit unions operate as SBA (Small Business Administration). These loans are guaranteed by their value by the government of the UK. These loans share an 85% guarantee. 

What Are Other Alternatives to Securing Small Business Loans for Bad Credit?

Whether a business is seeking a secured or an unsecured business loan for funding their immediate business requirements, multiple options are available to secure credit. Here are some alternatives to securing quick business loans no credit checks uk:

1) Turnover loans

Is your business operating with high turnover every year? If that’s so, you can easily secure a business loan. Some creditors consider this aspect while lending business loans.

2) Personal Guarantee loans

A personal guarantee loan is a loan where an individual provides a personal guarantee to pay off the business loan if the business cannot. It can be a business executive or a business partner.

3) Invoice financing

Invoice financing is a great way to clear the pending invoices and gather money for important business investing. It can help you improve the cash flow and money management required and be critical for business growth. 

It is not a great idea because a business pays a percentage of the total invoice and an additional fee to the provider. It is for this reason that businesses do not consider this option frequently.

4) Merchant Cash Advance

A merchant cash advance is a way of securing payments through a credit card based on monthly turnover. In this, the repayments are made on the projected business revenue. It works like if your business revenue is more, you pay more and vice versa.

5) Crowdfunding

Crowdfunding is one of the best ways to secure immediate funding for your business, especially if you are a start-up. Equity crowdfunding is one of the popular ways to secure funding in which the one who invests in a company gets a part of the same. Here, a business needs to provide a complete business plan and revenue forecasts.

If you do not want to offer a part of your business or a company, you can consider social crowdfunding. In this, persons invest in a business project, and businesses can repay the amount when they want to. So, these are a few ways a business can secure a business loan with poor credit. Apart from this, it is crucial for a business to main good credit history and report for seeking funds effortlessly in the future.