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Good people who deserve success have bad credit or poor credit at times due to no fault of their own. Recent Federal Reserve interest rates increases have made the lending industry even more strict and volatile than ever.
This is a big reason why the focus on credit scores and revenue has become even more intense if you are trying to apply for a working capital loan or any other type of loan for your business.
Consequently, many business owners who are dealing with personal credit challenges, often not due to any fault of their own, are looking for funding sources for working capital and expansion funding that will pay less attention to their credit score and more attention to their business revenue. If they don't have to make a personal guarantee, then that is even better.
AmeriCapital Solutions understands how frustrating this can be. This is why we are constantly seeking new network lending partners so that we can have the options are clients are looking for to increase their business revenue. We make the application process as zero stress as possible with lenders that offer low minimum credit score approvals to qualify, as long as the business is not a startup.
Many people ask us if they can get business funding based on the credit score of their business EIN number only? Perhaps they feel that they have bad credit personally, but their business EIN number has established credit with Dun & Bradstreet and Experian Business Credit, and they have kept their business tradelines paid.
The 5 C's of Credit
However, it is very rare that a lender will not also at least do a soft pull on the business owner's personal credit. Your FICO credit score is determined by a variety of factors. In particular they refer to it as the 5 C’s of credit. The 5 C's are: Character, Capacity, Capital, Conditions, and Collateral.
Time in Credit
Although not word’s starting with C, you could also add depth or the amount of time since you first started being reported to the credit bureaus. For example, someone that has no bad credit but only opened their first couple of credit accounts 6 months to a year ago, is going to score a lot lower than a person who has been responsibly managing credit accounts for several years.
Anyway, these characteristics are used to examine your history, when it comes to repaying your debts, how many if any late payments you have in your history, as well as how many payments you have managed to make on time. Of course, if you have ever defaulted on a loan, or have any bankruptcies, judgments, liens, foreclosures, or repossessions in your credit history, these will hurt you badly.
Debt to Income Ratio
They also factor in your DTI or debt-to-income ratio. While there are several credit scoring models that may be used to make a decision on whether or not you can be approved for a working capital loan, or a business line of credit, the most important and widely used is the FICO 8 Scoring Model.
If you would like to get a 3 Bureau FICO 8 side-by-side Credit Report for $1 you can click here. This company will help you monitor and improve your credit and also keep you protected from identity theft, which is becoming more and more common and scary these days. If your credit scores are already not as high as you would like, becoming the victim of identity theft can destroy your credit for years, not to mention empty your bank account.
Here are the different FICO credit score ranges:
Exceptional (800 - 850)
Very good (740 - 799)
Good (670 - 739)
Fair (580 - 669)
Poor (300 - 579)
Even though the "Fair Credit" designation goes up to 669, most lenders consider you as having bad credit if you have a 629 or lower score. A low FICO 8 score can often result in an automatic decline from a lender, even if you actually are good about paying your bills and the revenue and financial health of your business makes you believe that you should qualify.
For business owners seeking working capital or a line of credit for their business, this can be very frustrating because they might let their cable bill slip at home, but they always pay their business creditors, because that is their entire livelihood. Thankfully there are sources to get a business loan with low credit score approvals.
Bad Credit Business Loan Sources
If you are looking to get a business loan, as just mentioned, there actually are alternative lenders offering bad credit business loans that have low minimum credit score approvals. Just keep in mind that they usually will not work for a startup business. AmeriCapital Solutions has approved business owners with credit scores as low as 480 for what we call "starter" "foot-in-the-door," working capital funding options.
Establish a Payment History
Even though a starter working capital option is usually a more expensive merchant cash advance style of loan, if you make your payments on time and establish a good payment history, rates will go down and terms will get longer on future merchant working capital advances.
As well, as AmeriCapital Solutions is a business loan broker that can facilitate any type of business loan, including SBA loans, bank and credit union working capital loans, invoice factoring or financing, new business loans, business lines of credit and more, when you establish a payment history with one of our network funding partners, you are also establishing a payment history with us. We can then take that history to better lenders with lower cost-of-money options.
When you set up a free consultation call, with your personal dedicated AmeriCapital Solutions agent, we can give you a road map to obtaining the capital you need to develop and grow a successful business, even if you have bad credit.
If you are a startup business, we may still have an option or 2 for you as we have a personal term loan option and a home equity loan option. Please read carefully these steps to getting on the fast track to lower interest rates, and ongoing access to the capital your business needs to grow and be successful.
Your credit scores help lenders determine if you are a safe place to put their money. Since these scores can directly affect your chances of acquiring business loans and lines of credit, knowing your credit score and getting started as soon as possible on the process of improving your credit score can help you get access to the best financing options moving forward.
With our network partner, MyScoreIQ, you can know your credit and everything on it with all 3 of the bureaus that banks and other lenders always check in their process of determining your creditworthiness.
Research the Minimum Requirements for Each Type of Business Loan
Different lenders have different requirements. For example, one bank may auto-decline applicants if they don't meet a minimum credit score of at least 640. But another lender may have a minimum credit score requirement of only 600. Also, with most of them, you cannot be a startup.
As well, different products from the same bank, credit union or other lending sources, may have different minimum credit score approval requirements. For example, they may not approve anyone for a business line of credit that has less than a 700 minimum credit score. But for a working capital loan, that same institution may have a minimum credit score requirement of only 600.
4 Main Factors for Approval
Regardless, they all take these main 4 factors into consideration:
Personal credit score
Years in business
Annual revenue
Consistency of monthly revenue
We can consult with you to make sure that you know all of the requirements of both the bad credit small business loans, and the good credit options you are trying to get to in the future, if you do not qualify already.
Figure Out the Best Current option for Your Business
There are many types and providers of loans for bad credit applicants. Sadly, the entire lending industry is rigged to keep as many people paying as high if interest rates as possible. It is a depressing truth about the financial world we are all forced to operate in.
When you are exploring alternative financing options, you need to consider not only the eligibility requirements and repayment terms, but also the reputation of your lending source or loan broker.
Read the reviews of others that have worked with then in the past. Find a company and representative that works for you. A good business loan broker who already has a history with a group of lenders and funding sources, can be invaluable in this area.
How Can You Improve Your Odds of Acquiring Business Loans for Bad Credit
If you are thinking of applying for a small business loan, you really need to prepare. This is particularly true a low credit score. Prior to applying for a loan product to assist with the cash flow and growth of your business, take steps to improve your chances of approval. Please consider the following options for improving your approval odds for a bad credit business loan.
Because so many businesses fail in the first 2 years of operation, lending money to a small businesses, or providing a business with a line of credit, is inherently risky. Even for a business with more than 2 years of successful business operations can suffer from a sudden change in the economy or in world events. Look what COVID did you so many hotels and restaurants, some with 20 ,30, 4 and even 50 years or more of successful time in business!
If you have something of value, an excellent way to increase your chances of getting the funding you need to grow your business, is to provide be willing to provide something valuable, such as real estate, as collateral to secure the loan.
The best collateral you can have is real estate. If you have equity in your home, or another property, or if the business owns its location, there may be several ways that you can access the equity to provide cheaper, longer term working capital for your business.
Alternative HELOC Option
If you own your home or other properties, we may be able to help you access the equity in those properties. We can use a traditional bank or credit union, if you are looking for an equity loan or line of credit by using an investment property that you own.
However, if you are trying to access the equity in your personal home, because we are a business loan broker, we are not able to facilitate that type of loan with one of our bank network partners.
However, we do have non-bank private funding companies and private lenders that we can legally utilize, and they are faster and easier than a bank anyway. As well, they also have lower minimum credit score approval requirements and can be a good option for you to get a working capital loan.
The advantage to using these sources, as opposed to a bank or credit union, is just speed and convenience. In as little as 5 minutes, we can tell you if you are approved for a loan or line of credit using the equity in your property.
All we need to qualify you, is a short one-page online application and the address of the property. You need to have a minimum credit score of at least 640 and no recent bankruptcies, judgements or liens.
You can get as much as $400,000, which could potentially help to greatly increase your business revenue. This can be extremely useful for small businesses that cannot access traditional business financing for some reason. This type of loan typically has about a 14 day funding time.
However, because a HELOC is based on the equity you have in your home or investment property, the max approval amount will be restricted by whatever actual equity that you have in said property.
With our new partner, they will loan a lump sum of up to 85% of your equity. So, for easy math, if you have $100,000 in equity, you can get a lump sum of up to $85,000, minus a 5% origination fee.
Get Approved Today
So, on an $85,000 approval amount, you would net $80,750, which you could use for business working capital if you wanted to. And the interest rates would be very close to bank rates and much cheaper than an MCA. However, you do need to keep in mind that you would not get the tax write-off that an MCA would give you either.
Here are a couple of other collateralized loan options.
Invoice Financing or Invoice Factoring
With invoice factoring, you can get up to 80% of an invoice paid immediately. The factoring company then pays you the rest of the invoice, minus their fee, when the invoice is paid in full.
Some business owners do not like this option though because they have to get the company, they are issuing the invoice to, involved in the process. Not all business owners want the client they are invoicing to know that they are using an invoice factoring company.
Invoice factoring is best for business-to-business companies that perhaps don't meet all of the criteria yet to be qualified for a traditional working capital loan. Since factoring isn’t technically a business loan — but the sale of an asset, your receivables, it is not considered borrowing money. Because of that, factoring companies are much less strict on the credit score requirements and other business credit qualifications.
Equipment Financing or Equipment Loans
Equipment financing can have as low as a 4% APR but just like a car loan the interest rates can go up over a 30% APR if the applicant has a lower credit score or little credit history. Sometimes you can get an SBA loan for purchasing equipment and the interest rates can be pretty good. With equipment financing the equipment acts as collateral for the loan.
Use a Co-Signer
If you have a friend or business acquaintance that has great credit, and perhaps even has assets as well, and of course if this person has good reason to trust you, they can become a Co-Signer on some types of loans. This may be a way you can get a loan with bad credit. You are essentially using the good credit of someone else.
However, keep in mind that they become responsible for your debt if you don't pay. This can potentially damage their credit immensely if there is a legal battle later over the repayment of that loan.
What Are the Types of Bad Credit Business Loans?
The are a few different types of business loans for poor credit offered by alternative lenders. They include:
Short-Term Small Business Loans
A short-term small business loan provides a lump sum of capital that the borrower agrees to pay back over a fixed amount of time on a specific payment schedule. Each payment the borrower sends to the lender includes the principal amount plus any interest owed for the period.
Non-Traditional Short-Term Business Line of Credit
With a business line of credit, you can draw any amount up to the credit limit, and only pay interest on what you draw. Kind of like a credit card, once you utilize some of your credit limit, you can access the remaining credit left on the line whenever you want.
These types of credit lines usually have a maximum credit limit if $250,000. They are not really designed for large companies needs credit lines that go higher than that.
They generally term out in 6months, 12 months or 18 months. You can only get approved for an 18-month line of credit if you have 5 years or more time in business.
There is usually a small monthly maintenance fee, and each time you draw in the line there is usually a draw fee. Each draw will have its own payment schedule, so it is best to think ahead and consolidate draws because if you take 3 draws in one month, you are now going to be making 3 payments a month.
Collateralized Loans - Also Known as Secured Loans
If you secure your bad credit business loan with some sort of valuable collateral, you’re giving the lender the right to repossess whatever the item or property was that you used for collateral, to recover their losses if you’re unable to pay your loan back. These loans are also commonly referred to as secured business loans. They are usually secured real estate, with your accounts receivables or with equipment that the business owns.
Working Capital Loans
Working Capital essentially means a loan to provide funds for your business to be able to "work." So really, a working capital loan is a type of financing that a business owner or company can use to cover day-to-day business expenses, such as payroll, a lease payment for commercial real estate loan, utilities, inventory purchases, material purchases for construction projects, hiring of additional support staff, purchase of equipment or vehicles, covering expenses on large job projects where the contractor has to wait to be paid, etc...
These types of loans can come in several forms including business lines of credit, accounts receivable financing, merchant cash advance, term loans, project funding, hard money loans, bridge loans and SBA loans.
Things to Consider When Applying for a Small Business Loan
Any person who is seeking a small business loan who has bad or poor credit, has several factors that may influence your approval chances as well as the terms of their loan. This creates a number of important issues. Before you apply for a bad credit business loan, here are a few things you should think about.
How to Choose a Loan Based on Business Needs and Credit Score
A variety of factors contribute to your eligibility for a loan. Here are some general benchmarks that may contribute to your loan approval odds:
Are you a new business or a start-up business?
If you are a startup or have been in business for less than a year, it may be hard to find a loan, even if you have good credit. Potential financing options include startup financing, secured personal credit cards, and business credit cards.
Do any of the owners of the business have a bad credit score?
Unfortunately, lenders will not just choose the owner of the business that has the best credit and base their approval on him or her. They will check the personal credit of every majority owner. With some lender anyone with less than 15% ownership will not need to be on the application
Owners with a credit score over 550
If you have a credit score of 550 to 630, you may be able to be approved for a few different short-term working capital loans.
Owners with a credit score over 620
If your credit score is 620 or above, you may qualify for a medium-term loan and certain equipment financing options. If you have a credit score of 650 or above, you may also be able to be approves for certain SBA loan options. This is especially true if you have any real estate assets that can be used as collateral.
Owners with a credit score over 700
If you have a 700 or higher credit score, the financing world begins to become your oyster. You now have multiple options, as long as you have not had any bankruptcies in the last 5 years.
Make Sure to Compare Your Options
What is the Term on the Loan
It depends. A short-term loan, a loan you will be paying off pretty quickly, can have a term as short as 6 months to 3 years. while a mid-term loan usually has a two to five-year repayment period. The minimum requirements to get a business loan of this type can vary greatly.
As well, interest rates, and loan amounts of each type can have a wide range also. Carefully tak into consideration what repayment time frame and payment schedule works best for your needs as a business owner. Also think about the repayment terms' impact on the overall cost of any loan you accept.
As well, interest rates, and loan amounts of each type can have a wide range also. Carefully think about what repayment time frame works best for your needs as a business owner, and the repayment terms' impact on the overall cost of any loan you accept.
Assess how much interest and fees you’ll be charged on your open balance. True, if you take a long term loan you may have lower payments, but the overall expense of the loan will be much higher. For example, a 30-year mortgage with a 5% APR (5% interest per year) turns out to be very close to 100% interest or cost of money once you finish paying off that 30-year note.
Assess how much interest and fees you’ll be charged on your open balance. True, if you take a long term loan you may have lower payments, but the overall expense of the loan will be much higher. For example, a 30-year mortgage with a 5% APR (5% interest per year) turns out to be very close to 100% interest or cost of money once you finish paying off that 30-year note.
If you take out a short-term loan, you’ll probably have higher payments but less total interest or cost of money.
What Are Lenders Looking for on a Small Business Loan Application?
Lenders take in several other factors other than just credit scores. Time in business is important. If you have less than 2 years time in business, you are probably going to have to use a non-bank alternative funding source.
You will likely be paying off the loan or advance in 6 months to a year and the rate will likely be flat rate interest of 25% or higher. Fortunately, that interest is a good tax write-off for your business.
Annual Revenue and Monthly Revenue
The revenue of your business is the main determining factor, other than credit scores. Obviously, the more money the business is bringing in the more it is able to afford any payments it incurs on loans, lines of credit, and other small business loans. Most alternative funding companies will base their approval amount largely on the average of your most recent 3 months of bank statements.
Profit Margins
Even if your annual and monthly revenue is high, they are going to look very closely at your profitability. If, for example, you have no money left after paying your expenses each month, then you are not going to be able to afford much, if any monthly payment added to your current monthly expenses.
This is why a lot of lenders and alternative business funders look very closely at the "average daily balance," of your business bank account. The higher your average daily balance is, the more of a payment you can afford, and thus you can be approved for larger dollar amounts. Even if you have bad credit.
DTI or Debt-to-Income Ratio
This is closely connected to the last profit margins discussion. Whatever debt the business currently is paying on, is going to affect how much more debt it can take on. If your debt-to-income ratio is too high on the debt side of the equation, it has a direct effect on the lender’s scoring algorithm.
Also, lenders do not like to be in 2nd or 3rd position. The more lenders that there are in front of them when the business gets in trouble, the more difficult it is for them to collect through the legal system. So even if you do not have bad credit, but you do have a high debt-to-income ratio or they are too many other lenders in line in front of them to collect, they are less likely to approve you.
Cash Flow
This factor is directly tied to the frequency of business bank account deposits. For example, a business that gets 20 deposits that equal up to $100,000 a month in revenue has a better chance of approval than a business that gets 1 deposit per month for $100,000.
It's the same amount of money per month, but more frequent deposits equals better cash flow in the eyes of lenders, which means a higher likelihood that payments will be made on time.
Credit History
Obviously, the minimum credit score requirement, is also greatly influenced by WHY the credit score is where it is. It is easier to get bad credit business loans if the reasons for your bad credit are just things like a shorter history, or high balances on your credit cards, than if the reason for the bad credit score are repos, judgments, liens, or defaults on previous loans.
This can be a tough one. Lenders always do a background check. It is much more difficult to be approved for bad credit business loans if the applicant has a criminal record. However, it also again depends on what the nature of the offense was. If it was a DUI for example, it will be much less of a determining factor than a fraud or assault charge would be.
Sadly, the lending world is not very forgiving. Many business owners with good credit and bad credit, may have had run-ins with the law in their youth but have changed and lived a productive life ever since.
In other cases, they may have been falsely accused or unjustly prosecuted. But because their background has been tarnished with criminal charges, founded or unfounded, it can make it very hard for them to get approved for any business loans, including business loans for bad credit, even if they may be well over the minimum credit score.
Let Us Create a Roadmap to Better Loans for Your Business
We can help you to get started on the path to approval for all types of business loans. We can help you build a roadmap to getting out of the world of loans for bad credit, and into the world of high dollar amount revolving lines of credit that you only use when you need them.
Yes, there are a lot of loans for bad credit that you may have access to. If you currently have credit challenges, you can potentially use loans for bad credit with low minimum credit score requirements, as a steppingstone to bigger and better things.
What must you do to be able to qualify for a business loan with more favorable rates and terms? You need to demonstrate that you are a borrower who can be trusted to meet your repayment terms obligations as stipulated in your contract or loan documents. If you’re denied a small business loan elsewhere, set up a free consultation with AmeriCapital Solutions Today. We will teach you to use these ideas to improve your chances of obtaining a loan with better terms now or in the near future.
Improve Personal Credit
As discussed, even if you are applying for a business loan, your personal credit has a direct bearing on your approval, your approval amount, and the rates and terms of the loans and lines of credit that you apply for.
So keep these things in mind:
Always make payments on time
Keep balances below 30% of your total credit limit
Don't apply for too many loans, credit cards and/or lines of credit in a short period of time.
Keep hard credit inquiries to a minimum
There Are 3 Major Credit Bureaus in the USA
They are Experian, Transunion, and Equifax.
We highly recommend subscribing to their monthly service plan to monitor your Fico 8 Credit scores and credit reports from all 3 bureaus on a monthly basis. They can also protect you from scammers by alerting you instantly if anyone tries to use your information to open any accounts anywhere.
Pay Down Your Credit Card Balances
Did you know that if you have several maxed-out credit cards you can increase your credit score by sometimes as much as 100 to 200 points just by paying your balances down?!
Establish and Build Business Credit
Building your business’s tradelines credit history is one of the most effective methods to improve your eligibility for a business loan or line of credit. Establishing business credit can take some resources and time. Contact AmeriCapital Solutions today to get a list of easy accounts that you can open to build your business credit.
Get Imaginative with Funding Options
Bad credit business loans have legitimate uses in our society, if uses in the right way. Even if you’re approved for business loans with bad credit, you have to think of that approval as one step on a ladder to better things. That first approval, can help you to build your credit and payment history.
There is good news though. After you secure and pay off your first business loan, your improved credit score may help you qualify for business loans with higher amounts, longer terms, more options, and an easier repayment schedule, on any loans you take in the future. As well, more lenders will be competing for your business.
If you need additional funding to realize your vision for the future even sooner, you may consider networking with other business owners and private lenders. for certain industries, private investors may be a possibility. You can also seek funding through crowdfunding platforms like GoFundMe.
As with all financing options, you must be able to show lenders, private funders and investors, and other businesspeople that your bad credit or challenged credit is not a good reason to not have trust in you.
Write or Hire a Professional to Write You a Business Plan
Having a good business plan or executive summary, may be able to get you access to loans for bad credit that you might not otherwise be able to get. Lenders that will consider issuing business loans for bad credit or challenged credit applicants are going to want to see that you have a plan.
The world of small business loans for bad credit, can be tricky to navigate. Especially if you have limited time in business and experience. What other types of cash flow or small business loans for bad credit options are out there?
Term Loans
Term loans are usually for a 2 to 3 year "term." However, they are not always, strictly speaking, an actual loan.
If you get a term loan from a bank, then yes that is a loan. But many alternative funding companies that offer a long-term advance against the receivables of your business, (not an actual loan) will still call the product a term loan. Term loans provide a sum of cash up front that is repaid over a set period of time with fixed, equal payments.
Term loans for established businesses, can be useful as business debt consolidation loans. If you have 2 or 3 advances and perhaps a few financed vehicles, then a good term loan with decent rates may help you reduce your debt load, and increase monthly cash flow, so you can use your working capital more efficiently.
If you’re looking for a small business loan, compare your options with AmeriCapital Solutions.
We will do our own in-house underwriting. You can find what type of small business or even large business loan or line of credit you can be approved for, with no impact on your credit score. We can get you a list of business loans for bad credit that you can get approved, for now, that have low minimum credit score requirements. You can use those options as a stepping stone for your small business.
What About Merchant Cash Advances
Merchant cash advances are another form of accounts receivable financing for small businesses that bill consumers directly. They often have daily or weekly payment terms. They can almost be used for a startup business if the business can survive on its own until it reaches the 6-month mark with a business bank account.
MCAs are defined as a "purchase of future receivables." One reason they are popular is they sometimes have just a 1 business day funding turn-around time. They often do not require a personal guarantee, your loan amount can go up to $1-Million, sometimes $2-Million.
They can be based on your monthly revenue instead of your annual revenue. You can qualify with a minimum FICO score of 500 to 550 sometimes. But of course, many do not like the daily or weekly payment options.
They technically and legally are not a working capital loan, but they can be used to get short-term working capital quickly when it is needed by the business, and, as mentioned before they have low minimum credit score requirements in comparison to other small business loan options. Plus, 1 day funding can come in handy sometimes.
Because MCA funding companies can automatically take payments, either from your credit card sales, or as an ACH from your business checking account, you can get approved with as little as four months of time in business. They are a popular option for many small business owners nationwide.
More on Merchant Cash Advances and Term Loans
Alternative Term Loans are often just a glorified merchant cash advance, unless you get the term loan from a traditional source like a bank. A lot of online lenders offer term loans to persons with poor credit.
They can sometimes also fund as fast as 1 business day. You can qualify with a lower personal FICO score, and the loan application process is usually pretty fast and easy. You can get a loan amount of $1-Million or more sometimes, and they may only look at the revenue for your most recent 3 to 6 months of bank statements.
If you have poor credit, AmeriCapital Solutions is a much better choice than big online lenders or super brokers like Lendio and Lending Tree. Online lenders may offer low minimum credit score approvals, and you may not need a high business credit score, and they may also not need a personal guarantee.
However, often they only have 1 or 2 loan products that they will do their best to sell you whether or not they are actually a good option for your small business or not.
What is an SBA Loan?
These loans are guaranteed by the U.S. Small Business Administration and issued through participating banks, credit unions, and online lenders. SBA 7(a) term loans and lines of credit provide up to $5 million for working capital, expansion, or equipment purchases. They usually require 2 years of time in business so would not be a good startup business loan option. You need string revenue to qualify for SBA loans.
Obviously, the best working capital loans are going to be with a bank or credit union, as you get much lower rates, and longer repayment terms, and you do need to have as high of annual revenue as you would need with a very short-term alternative working capital loan or advance.
The long terms and low-interest rates of SBA loans make them one of the most affordable types of financing, but you need to find a good SBA bank intermediary, as different backs have different appetites and reputations with the SBA.
A bank with a good working relationship with the SBA that has had few if any defaults, will have a much better chance of getting you approved than a bank that has had more borrowers default on SBA loans in the past.
Whatever your current business situation is, make AmeriCapital Solutions Your One-Stop Shop Business Funding Provider.
Call or Text us today at (442) 222-9429 or email info@americapitalsolutions.com or visit our website at www.AmeriCapitalSolutions.com.
Text Your Name and Email Now to (442) 222-9429 to Receive Your Funding Programs Overview to Keep on File and Review a Snapshot of Your Business Funding Options.