4 min read
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.
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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.
Your credit score is calculated using data from a variety of sources.
Your birth date, current and previous addresses.
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.
Unsurprisingly, if you have any convictions or court appearances related to debt, fraud or bankruptcy this will be listed on your credit score.
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.
Your birth date, current and previous addresses.
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.
Unsurprisingly, if you have any convictions or court appearances related to debt, fraud or bankruptcy this will be listed on your credit score.
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.
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.
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.
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.
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.
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.
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.
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.
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.
To see this piece of interactive content, please visit our main site below.
Informi’s Funder Finder tool connects small businesses to alternative finance solutions based on your requirements. There are no credit checks, just a simple five-minute form to fill out.
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