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NGExpert financial copywriter
Page written by Rachel Wait. Last reviewed on November 6, 2024. Next review due April 6, 2025.
If your business has poor credit or a limited credit history, it can be challenging to secure a business loan. Lenders will carry out a credit check when you apply for funding, and if they see that your credit score is low, they may be reluctant to let you borrow.
However, the good news is that there are still options available to you, as we explain.
No credit check business loans are simply loans that don’t require a credit check as part of the application. Unfortunately, in the UK, you won’t be able to apply for a business loan without undergoing some form of credit check.
This is because lenders will want to assess how likely you are to repay the loan, and checking your business’ credit history enables them to do this. It gives them a picture of how well you’ve borrowed in the past (if at all), and whether you’re likely to be a responsible and reliable borrower this time round.
You may be able to assess your eligibility for a business loan without undergoing a “hard” credit check, but you will usually still need to undergo a “soft” credit check.
A soft credit check is an initial look at your credit record. A soft check won’t leave any mark on your credit record and only you can see that the search has been carried out.
A hard credit check, on the other hand, is a full search of your credit report. This is recorded on your report which means any company that searches your credit file can see you’ve applied for credit. Too many hard searches in a short period of time can have a negative effect on your credit score.
Before you apply for a business loan, you might be able to use an eligibility checker that only uses a soft credit search. This will tell you how likely you are to be accepted for a loan before you apply in full. If your lender offers this, it’s well worth using it.
Yes, lenders carry out a credit check before accepting your application for a business loan. This enables them to assess your business’s creditworthiness and how likely you are to repay the loan.
Some specialist online lenders may agree to let you borrow funds by only carrying out a soft credit check, rather than a more comprehensive hard check. But this will be for alternative types of finance, rather than a traditional term business loan.
Examples include merchant cash advance or invoice financing that use your sales receipts and billings as security for a loan – these types of borrowing can be available without a hard credit check, although they are typically more costly than standard business loans.
There are many reasons why you might be looking for a no credit check business loan. For example:
A business credit score is an indicator of the financial strength of your organisation and its ability to pay its bills. This is an important metric. Lenders will consider your business credit score when deciding to lend you funds.
Your score will also impact how much you pay for borrowing the cash. The better your score, the better your chances of getting a loan at a competitive interest rate.
Business credit scores are different from personal credit scores. Usually graded from 1 to 100, a good business score is 80+. If your score is less than this, you may struggle to secure the best types of loan, and you should take steps to improve your score.
Regularly checking your credit reports – both business and personal – is an easy way to ensure they contain no mistakes. Incorrect information – no matter how small – can impact your chances of getting a business loan. If you spot any errors, such as a mistake in your business address, contact the credit reference agency to get this corrected before applying for a loan.
The following steps can help you to rebuild your credit score over time:
In the UK, all lenders must ensure they lend responsibly, which means they are obliged to carry out some form of credit check – whether soft or hard. However, different lenders will have different eligibility criteria, with some being more lenient than others.
As well as your credit score, certain lenders will consider other factors including your trading history, annual or monthly turnover and the reasons for your poor credit – particularly if you’re applying for any of the following:
This is a type of business loan that enables your business to purchase machinery and equipment on credit by using the asset you’re financing as security. Once the loan is approved, the lender sends the funds to the equipment vendor, who then delivers the machinery. You use the equipment as you pay for it and the lender maintains a lien on the title to the machinery until the loan is repaid. No other collateral is required.
This type of loan enables you to borrow against the value of your unpaid invoices. The lender usually provides up to 95% of the invoice value within a few days or even hours of the bill being raised. The invoices act as collateral and, when the invoices are due, the lender often collects the amount owed directly from the customer. The lender then pays you the remaining balance, minus any fees and charges.
Eligibility for a merchant cash advance is usually based more on your business’ sales and future revenue than your credit score. You’re advanced a lump sum that you then repay as a percentage of your card sales, plus fees. Repayments fluctuate in line with your income, so you pay less when business is slow, but more when business is doing well.
No, all loan providers are legally required to carry out some form of credit check before lending. If you come across a lender claiming that no credit check is necessary, they may still carry out a soft credit check, so it’s worth finding out.
Keep in mind that not all business lending is regulated by the Financial Conduct Authority (FCA), so it can be sensible to look at company reviews before you proceed.
This depends on your overall financial situation, but you may find it easier to get a secured business loan than an unsecured one. That’s because secured loans require you to use an asset, such as property, as collateral.
Should you fail to repay your loan, the lender can seize the asset and sell it to reclaim its money. Because this reduces the lender’s risk, the lender may be happier to offer you this type of loan, and interest rates tend to be lower than unsecured loans.
It can also be easier to get accepted for a business loan if you agree to sign a personal guarantee. This means you become personally liable for repaying the loan if your business can’t.
You won’t be able to get a business loan in the UK without having some form of credit check. However, depending on the lender you choose and the type of loan you’re applying for, lenders may consider a range of other factors, as well as your credit score, before deciding whether to let you borrow.
To increase your chances of a successful application, it pays to have all the relevant documentation to hand when you apply. This can include:
Fill in the application form carefully to avoid mistakes, and make sure you are clear about what you plan to use the funds for.
As with all forms of financing, there are advantages and disadvantages with no credit check business loans:
Pros
Cons
No, although some lenders offer startup business loans, you’ll still need to undergo a credit check to get one. Be aware that if you have poor credit, it can be harder to secure a startup loan, particularly as new businesses are already viewed as risky by lenders.
For this reason, you may need to approach a specialist online lender as these can have more flexible lending criteria. However, you will likely pay a higher interest rate and may not be able to borrow as much as you’d originally hoped.
If you’re struggling to get accepted for a business loan, there are plenty of alternative options to explore:
Business grants can be a good option for small business owners. Credit checks are usually not required, and, unlike business loans, you don’t need to repay the money. However, the downside is that it can be very tough to secure a grant. They are often restricted to specific locations, industries or causes, making it difficult to qualify.
It’s possible to raise money for your business by listing it on a crowdfunding platform and asking for small donations from large numbers of people. Depending on the type of crowdfunding you choose, your donors might get shares in your company, rewards such as free gifts and products, or there might not be any financial return at all. An eye-catching idea and a powerful pitch is essential to succeed with this funding option.
Many small business owners borrow money from family and friends, especially when they are trying to get a new venture off the ground. However, using funds from loved ones can often be a source of contention if the ground rules are not clear from the start.
If you have access to this type of financing opportunity, make sure your funders know if they are providing a loan, a gift or an investment from the start. If there are plans to pay the money back, put this down in writing with a clear repayment schedule – including a plan of action if things do not turn out as expected and you cannot pay the funds back on time, or at all.
No matter if you’re seeking your first loan or you’re a seasoned borrower, working with business finance experts can make all the difference when applying for funding. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high-quality business loans from a choice of lenders. Give your organisation the financial boost it deserves. Register with Swoop today.
Written by
Rachel has been writing about finance and consumer affairs for over a decade, helping people to get to grips with their finances and cut through the jargon. She's written for a range of websites and national newspapers including MoneySuperMarket, Money to the Masses, Forbes UK, and Mail on Sunday. Rachel has covered almost every financial topic, from car insurance and credit cards, to business bank accounts and mortgages.
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