As a small business, access to finance is important for your continuing growth. When you send off your finance application, lenders will view your credit history. As an SME your personal and business credit history may be used to support your application depending on the loan or the amount of time your business has been trading for - in some cases, a lender may ask for a personal guarantee from the key shareholders. In any case, having a good credit history will put your business in a great position to fast track your loan applications.
But what if you have a poor credit history?
A bad credit history can negatively impact your chances of securing business finance loans through a traditional bank as you will be seen as ‘higher risk’. However, you can improve your chances by taking advantage of open banking technology by connecting to your bank directly on Business Finance Finder’s (Finpoint) platform to have all your historical financial information shared securely to lenders so that they can get a broader insight of your prospective lending capabilities. Traditional banks still have a long way to go in terms of providing loan access to ‘higher risk’ borrowers.
Alternative lenders provide more choice and flexibility in regards to funding business loans to those with a poor credit history and are typically more attuned to responding to open banking API data and company house data to access your portable credit files - using references to your revenue, gross sales, business performance, business reputation and cash flow projections to inform their lending decisions.
What loans should you be looking at?
If you have poor credit history, your business loan options can still include:
- Secured Business Loans
Secured business loans require the business to put up collateral against the loan i.e. business assets, such as business equipment or property. If you fail to repay the loan, the lender has the right to take away the asset. Secured business loans are thought to be less risky to the lender as it ensures the lender will recoup payment through your assets if you are unable to payback the loan. Lenders may require a director’s personal guarantee as an additional form of security for businesses with poor credit.
- Unsecured Business Loans
An unsecured business loan offers faster funding than secured business loans, but the loan amount offered is typically less over a shorter repayment period with higher interest rates for SMEs with a poor credit history. With an Unsecured Business Loan, you do not have to use your assets as collateral - but as the lender has no security via your assets, your credit history, or business profile (trading history, revenue, cashflow, etc) has a high factor in deciding your lending capability.
- Merchant Cash Advance
A Merchant Cash Advance is a great option for businesses with poor credit history and/or limited assets as the loan repayment is established through an agreed percentage taken off of future processed card payments from the businesses’ card payment terminal. Merchant Cash Advances can be easier to obtain than traditional funding options and businesses that have been rejected for other types of funding may still qualify for a merchant cash advance.
- Invoice Finance
Invoice Finance is becoming increasingly popular for SMEs as an alternative funding source, it offers more competitive loan terms than historically has been the case and can be utilized effectively as a revolving credit. With Invoice Financing you do not need to provide collateral or a personal guarantee as your unpaid invoices are the collateral. Invoice Finance can be used across your whole sales ledger or you can select the invoices you want to finance for your loan.
Ready to explore your business finance options?
Whether you’re looking to grow your business, make investments or support your cash flow, we are here to help. As a business you can use the service for free and save time with one simple online application, and let our experts handle the rest.