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Woman managing the debt
4 min read

Can I secure business finance if I’ve got a bad credit score?

Having a bad credit score can be problematic when it comes to securing finance for your business. However, it doesn’t mean that there are no funding options available to you.

What is a credit score?

Your credit score is an indication to lenders of how reliable you are when it comes to paying back borrowed funds. This score is based on a range of factors including your history of debt repayments and personal finance information. Based on this, lenders will assess whether you are likely to be able to pay the debt back on time and in full.

A high credit score indicates you are less of a risk, whereas a low score is a warning sign to lenders that you may struggle to repay the debt.

How is my credit score calculated?

Your credit score is calculated using data from a variety of sources.

  • Voting slip
    Electoral roll

    Your birth date, current and previous addresses.

  • Calculating business expenses

    If you are currently borrowing funds – the most common being loans, credit cards or your mortgage – your total debt will be taken into account, as well as the start and end dates for repayments, plus any missed payments.

  • Court appearances and fraud records

    Unsurprisingly, if you have any convictions or court appearances related to debt, fraud or bankruptcy this will be listed on your credit score.

  • Gold credit card up close
    Credit checks

    Every time you apply for credit, your credit score will be checked. If you have made multiple applications, this can negatively impact on your credit score.

How does my personal credit score relate to my business credit score?

Your personal credit score and business credit rating are different but for some small businesses owners just starting out the lines can be blurred. This is because startups often rely on personal finance to get going.

However, it is generally advisable to keep lines of credit separate. For example, if you take out a company credit card, do not name yourself a guarantor as this will link both credit histories if the business is also held in your name.

What are my funding options if I have a poor credit score?

Whilst a poor credit score will limit your options, there are still ways to secure finance for your business. As with consumer credit, some lenders will allow you to borrow funds but often with higher interest rates on repayments. Clearly, in such a case, you need to establish whether taking on the extra debt burden is in your interests. Whilst not ideal, you may feel that your investment needs justify the high-interest repayments and total borrowing costs.

  • bank note

    Bad credit business loans are available through specialist lenders and some High Street banks. If you own assets such as property, you may be able to use asset financing which can be used as a security, a secured loan may be an option. Unsecured loans, however, tend to be more common.

  • Pile of credit cards, narrow focus.
    Credit cards

    Credit cards are also available to cater for businesses with bad credit. Your credit limit is likely to be low and the interest rates high.

  • Peer-to-peer

    Instead, you may choose to bypass banks and financial institutions and source investment through crowdfunding platforms. While it can be quicker to process than a bank, without the red tape, there are often still conditions around repayment – including interest rates.

Checklist: How can I make myself more attractive to lenders?

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