{"id":26735,"date":"2023-05-25T11:35:44","date_gmt":"2023-05-25T11:35:44","guid":{"rendered":"https:\/\/swoopfunding.com\/ca\/?post_type=blog&#038;p=26735"},"modified":"2024-07-16T16:17:30","modified_gmt":"2024-07-16T16:17:30","slug":"how-to-buy-a-business-with-bad-credit","status":"publish","type":"blog","link":"https:\/\/swoopfunding.com\/ca\/blog\/how-to-buy-a-business-with-bad-credit\/","title":{"rendered":"How to buy a business with bad credit"},"content":{"rendered":"\n\n\n\nDon\u2019t let bad credit stand in the way of a great business. You may have to clear a few extra hurdles in order to secure the financing you need, but it can still be done. Here\u2019s some information to help make it happen.\n\nLet\u2019s start with the good news. Your credit score is only one of five criteria that financial institutions traditionally assess when considering a <a href=\"https:\/\/swoopfunding.com\/ca\/business-loans\/\">business loan<\/a> application. So, even if you have bad credit, you still have an opportunity to show a potential business loan provider your other strengths.\n\n\n\n\n\nHere are the five Cs of business loan credit:\n\n\n\n\n<ul class=\"wp-block-list\">\n \t<li style=\"list-style-type: none;\">\n<ul>\n \t<li><strong>Character<\/strong>: How credible and trustworthy are you? While your credit score is part of the answer here, there is also your education, your work history, your entrepreneurial experience, and your notable accomplishments.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n\n\n<ul class=\"wp-block-list\">\n \t<li style=\"list-style-type: none;\">\n<ul>\n \t<li><strong>Capital<\/strong>: How much capital (money) are you investing in the project? The more capital you contribute as a percentage of the overall project, the more committed you will be, and the less risk you are asking the lender to take on.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n\n\n<ul class=\"wp-block-list\">\n \t<li style=\"list-style-type: none;\">\n<ul>\n \t<li><strong>Capacity<\/strong>: How much debt will you be carrying? Your debt-to-income (DTI) ratio looks at how much you make versus how much you are paying towards debt on a regular basis. Your capacity to borrow is generally limited by a maximum acceptable DTI.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n\n\n<ul class=\"wp-block-list\">\n \t<li style=\"list-style-type: none;\">\n<ul>\n \t<li><strong>Collateral<\/strong>: Is there a home or other asset that the lender can seize if you fail to repay? Having <a href=\"https:\/\/swoopfunding.com\/ca\/business-glossary\/collateral\/\">collateral<\/a> to pledge can greatly reduce the risk to the lender. This makes it easier to borrow and may reduce your <a href=\"https:\/\/swoopfunding.com\/ca\/business-glossary\/interest-rate\/\">interest rate<\/a> as well.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n\n\n<ul class=\"wp-block-list\">\n \t<li style=\"list-style-type: none;\">\n<ul>\n \t<li><strong>Conditions<\/strong>: How much do you need, how soon will you pay it off, and at what interest rate? All of these variables can be part of the conditions of your business loan. If you have bad credit, you might expect more stringent conditions.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n\n\n\nIf you want a business loan but have bad credit, there are several ways to work around it. If you have other things going for you, like a great professional track record, a winning business idea, capital of your own to contribute, and\/or an asset to pledge as collateral, you might very well be offered the loan you need, albeit with an extra condition or two, compared to someone with perfect credit.\n\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What is bad credit?<\/strong><\/h2>\n\n\n\n\nBanks and other lenders use a scoring system to rank the creditworthiness of borrowers. From their point of view, your credit score is an indication of how risky it will be to lend you money. The higher your score, the better your chances of getting approved for a business loan or other forms of credit.\n\n\n\n\n\nHere\u2019s how the scoring system stacks up:\n\n\n\n\n\n300-559 &#8211; Bad credit\n\n\n\n\n\n560-659 &#8211; Fair credit\n\n\n\n\n\n660-724 &#8211; Good credit\n\n\n\n\n\n725-759 &#8211; Very good credit\n\n\n\n\n\n760-900 &#8211; Excellent credit\n\n\n\n\n\nYou can increase your credit score by making credit card and loan payments on time and by carrying less debt overall.\n\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How does bad credit affect business financing?<\/strong><\/h2>\n\n\n\n\nA bad credit score can make obtaining a business loan more difficult. You may need to expend more time and effort convincing a traditional lender to give you the credit you seek. You may be able to do this by emphasizing the stronger aspects of your application beyond your credit score. You may also need to investigate non-traditional funding sources, such as alternative lenders, working with a credit partner, or arranging <a href=\"https:\/\/swoopfunding.com\/ca\/blog\/complete-guide-to-vendor-financing\/\">vendor-take-back financing<\/a>.\n\n\n\n\n\nAnother way bad credit can affect your business financing is the cost of borrowing. A bank will likely charge a higher interest rate if you have a low credit score compared to someone with excellent credit. Alternative lending arrangements outside of a traditional bank also tend to come with higher interest rates.\n\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Steps to buying a business with bad credit:<\/strong><\/h2>\n\n\n\n\nIf you have bad credit, it is best to be open and honest about it with lenders. You cannot hide the truth, and trying will only damage your character (the first of the 5 Cs of credit).\n\n\n\n\n\nIt\u2019s preferable to provide the lender with context that will help your case. What were the circumstances that lead to you having bad credit? Was it the result of an unforeseen event or a past mistake? What have you learned from this experience, and what steps are you taking to rebuild your credit?\n\n\n\n\n\nIn addition to addressing your bad credit score head-on, you can also build a strategy to maximize your standing regarding the other 4 Cs of credit: capital, capacity, collateral, and conditions.\n\n\n\n\n\nBeyond the 5 Cs, here are three more steps you can take to <a href=\"https:\/\/swoopfunding.com\/ca\/blog\/how-to-buy-a-business\/\">buy a business<\/a> with bad credit:\n\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Improve your financial situation<\/strong><\/h3>\n\n\n\n\nThe first thing you might want to do is contact a credit bureau to find out your credit score. One reason to do this is so you know your starting point and what you might be up against. A second reason is so that you can identify any potential errors. For example, if you find an outstanding balance listed that you know you have paid off, you can contact the bureau to have it fixed and potentially make an instant improvement to your credit score.\n\n\n\n\n\nHere are a few more tips that can help your score:\n\n\n\n\n<ul class=\"wp-block-list\">\n \t<li style=\"list-style-type: none;\">\n<ul>\n \t<li><strong>Pay your bills on time.<\/strong> All it takes is one payment 30 days past due to put a negative mark on your score.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<ul>\n \t<li style=\"list-style-type: none;\">\n<ul>\n \t<li><strong>Pay off your credit card every month.<\/strong> Carrying a balance costs a fortune in interest and negatively impacts your score.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<ul>\n \t<li style=\"list-style-type: none;\">\n<ul>\n \t<li><strong>Stay well under your credit limit.<\/strong> One of the factors in your credit score is your utilization rate. Using 30% or less of your available credit looks good, but maxing out your credit will hurt your score.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<ul>\n \t<li style=\"list-style-type: none;\">\n<ul>\n \t<li><strong>Be strategic about credit applications. <\/strong>Prepare before applying to ensure your application will be approved. Frequent credit applications will send up a red flag to hurt your score.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Work with the right people<\/strong><\/h3>\n\n\n\n\nIf you have bad credit, choosing to work with a business partner can help with all 5 Cs of credit. The ideal partner could be someone with a high credit score, a history of business success and sound financial management, the ability to invest their own capital and\/or the capacity to help carry the business loan.\n\n\n\n\n\nIf you decide to enter a partnership, you will also want to work with a lawyer to help you draft a partnership agreement. This agreement covers things like roles and responsibilities while acquiring and running the business, and equally crucially, what will happen if the partnership comes to an end someday.\n\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Secure a guarantor<\/strong><\/h3>\n\n\n\n\nAnother option for buying a business with bad credit is to have someone guarantee or co-sign your business loan. If you have a friend or family member with the credit score, assets, and income the lender is looking for, they can agree to take responsibility of repaying the loan if you fail to do so.\n\n\n\n\n\nThis is a major commitment for the co-signer. Their guarantee will appear on their credit history and may limit their future ability to borrow money for their own purposes. And, of course, if you cannot repay your business loan for any reason, the responsibility will fall to them.\n\n\n\n\n\nOn the flip side, you might know someone who wishes to take on this risk in exchange for a percentage of ownership in your business. This person may even wish to be an active participant in the business with a vested interest in your success.\n\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Avoid further damage to your credit by being proactive:<\/strong><\/h2>\n\n\n\n\nWhen it comes to business financing, it is better to be proactive than reactive. You don\u2019t want to apply for credit when you\u2019ve already used up your savings and are starting to miss payments. Instead, you want to anticipate your need for credit so you have time to prepare, then apply from a position of strength and get the funding you need with time to spare.\n\n\n\n\n\nRead on for some ways to be proactive:\n\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Plan your project ahead of time<\/strong><\/h3>\n\n\n\n\nIf you have a bad credit score and want to buy a business, planning and preparation are going to be key. Here are some things to work on before you talk with potential lenders:\n\n\n\n\n\n<strong>Have a good business plan. <\/strong>Be prepared to show in detail why your product or service is in demand, who your customers are, how you will acquire them, and how you will sell to them profitably.\n\n\n\n\n\n<strong>Show how you will repay.<\/strong> Gather supporting documents, such as contracts and purchase orders that demonstrate your ability to repay. If the business is a startup and there is no history to draw upon, produce detailed and realistic forecasts that demonstrate how you will repay the loan.\n\n\n\n\n\n<strong>Be prepared for the 5Cs.<\/strong> Prepare answers as to why you have the character and credibility to be creditworthy. Document the capital you are putting at risk in the business and the income you have to carry the loan. Highlight any partnerships, potential guarantors, or other relationships that bolster your case.\n\n\n\n\n\nPreparing this way will not only speed up the application process, but it will also speak volumes to the lender about your level of commitment and responsibility.\n\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Consolidate current debts<\/strong><\/h3>\n\n\n\n\nIf you currently have a number of different loans, credit cards, or other debts, a debt consolidation loan might be worth considering. By borrowing a single large sum to pay off you other debts, you can potentially lower your monthly payment, simplify your finances and help improve your credit score over time. But beware: this strategy is only beneficial as long as you don\u2019t run up those old debts again \u2014 it takes discipline.\n\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Get started with Swoop<\/strong><\/h2>\n\n\n\n\nWhether your credit is poor, excellent, or somewhere in between, let Swoop scan the market for the best business financing options and deliver them to you in minutes. <strong><a href=\"https:\/\/app.swoopfunding.ca\/stage\" target=\"_blank\" rel=\"noopener\">You can get started right now<\/a>.\u00a0<\/strong>\n\n","protected":false},"excerpt":{"rendered":"<p>Don\u2019t let bad credit stand in the way of a great business. You may have to clear a few extra hurdles in order to secure the financing you need, but it can still be done. Here\u2019s some information to help make it happen. Let\u2019s start with the good news. Your credit score is only one [&hellip;]<\/p>\n","protected":false},"author":29,"featured_media":26736,"comment_status":"open","ping_status":"closed","template":"","category":[334,333],"class_list":["post-26735","blog","type-blog","status-publish","has-post-thumbnail","hentry","category-swoop-guides","category-business-acquisition"],"acf":[],"featured_image_urls_v2":{"full":["https:\/\/swoopfunding.com\/ca\/wp-content\/uploads\/sites\/2\/2023\/05\/buy-a-business-bad-credit-featured-scaled.jpg",2560,1707,false],"thumbnail":["https:\/\/swoopfunding.com\/ca\/wp-content\/uploads\/sites\/2\/2023\/05\/buy-a-business-bad-credit-featured-150x150.jpg",150,150,true],"medium":["https:\/\/swoopfunding.com\/ca\/wp-content\/uploads\/sites\/2\/2023\/05\/buy-a-business-bad-credit-featured-300x200.jpg",300,200,true],"medium_large":["https:\/\/swoopfunding.com\/ca\/wp-content\/uploads\/sites\/2\/2023\/05\/buy-a-business-bad-credit-featured-768x512.jpg",768,512,true],"large":["https:\/\/swoopfunding.com\/ca\/wp-content\/uploads\/sites\/2\/2023\/05\/buy-a-business-bad-credit-featured-1024x683.jpg",1024,683,true],"1536x1536":["https:\/\/swoopfunding.com\/ca\/wp-content\/uploads\/sites\/2\/2023\/05\/buy-a-business-bad-credit-featured-1536x1024.jpg",1536,1024,true],"2048x2048":["https:\/\/swoopfunding.com\/ca\/wp-content\/uploads\/sites\/2\/2023\/05\/buy-a-business-bad-credit-featured-2048x1365.jpg",2048,1365,true],"image_blog":["https:\/\/swoopfunding.com\/ca\/wp-content\/uploads\/sites\/2\/2023\/05\/buy-a-business-bad-credit-featured-408x252.jpg",408,252,true],"image_podcast":["https:\/\/swoopfunding.com\/ca\/wp-content\/uploads\/sites\/2\/2023\/05\/buy-a-business-bad-credit-featured-397x298.jpg",397,298,true],"image_banking":["https:\/\/swoopfunding.com\/ca\/wp-content\/uploads\/sites\/2\/2023\/05\/buy-a-business-bad-credit-featured-30x20.jpg",30,20,true],"image_blog_internal":["https:\/\/swoopfunding.com\/ca\/wp-content\/uploads\/sites\/2\/2023\/05\/buy-a-business-bad-credit-featured-840x480.jpg",840,480,true],"image_blog_medium":["https:\/\/swoopfunding.com\/ca\/wp-content\/uploads\/sites\/2\/2023\/05\/buy-a-business-bad-credit-featured-1024x500.jpg",1024,500,true],"image_single_banking":["https:\/\/swoopfunding.com\/ca\/wp-content\/uploads\/sites\/2\/2023\/05\/buy-a-business-bad-credit-featured-80x53.jpg",80,53,true]},"post_excerpt_stackable_v2":"<p>Don\u2019t let bad credit stand in the way of a great business. You may have to clear a few extra hurdles in order to secure the financing you need, but it can still be done. Here\u2019s some information to help make it happen. Let\u2019s start with the good news. Your credit score is only one of five criteria that financial institutions traditionally assess when considering a business loan application. So, even if you have bad credit, you still have an opportunity to show a potential business loan provider your other strengths. Here are the five Cs of business loan credit:&hellip;<\/p>\n","category_list_v2":"<a href=\"https:\/\/swoopfunding.com\/ca\/category\/swoop-guides\/\" rel=\"category tag\">Swoop guides<\/a>, <a href=\"https:\/\/swoopfunding.com\/ca\/category\/business-acquisition\/\" rel=\"category tag\">Business acquisition<\/a>","author_info_v2":{"name":"Michael David","url":"https:\/\/swoopfunding.com\/ca\/author\/michael-david\/"},"comments_num_v2":"0 comments","_links":{"self":[{"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/blog\/26735","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/blog"}],"about":[{"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/types\/blog"}],"author":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/users\/29"}],"replies":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/comments?post=26735"}],"version-history":[{"count":3,"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/blog\/26735\/revisions"}],"predecessor-version":[{"id":34526,"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/blog\/26735\/revisions\/34526"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/media\/26736"}],"wp:attachment":[{"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/media?parent=26735"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/category?post=26735"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}