Bad credit business loans

Even if you have bad credit, or if you’ve been turned down elsewhere, it may still be possible to secure the funding your business needs. 

Term loans

This is the simplest form of bad credit business loan. You receive a single, lump-sum cash injection and then pay it back in regular instalments, plus interest and any fees, over a fixed period of anywhere from 1 to 25 years. Depending on the what the loan is being used for – such as buying assets that the lender can place a lien on – it may be possible to secure the funds without providing added collateral, although interest rates and fees will be higher. Term loans can also be secured by adding a cosigner with good credit or solid collateral to the deal. This will also make the loan cheaper to maintain.

Secured loans

Secured business loans are easier for borrowers with bad credit to obtain. You provide hard assets, such as real estate, plant and machinery, or inventory as security for the loan. The lender holds a lien on the assets until the loan is paid back, then full ownership returns to you. Secured loans typically come with lower interest rates and fees than many other bad credit business loans.

Line of credit

A line of credit is a business loan that functions like a high-value credit card. Organisations can withdraw as much as they want when they want from a loan facility up to the limit of their borrowing. Interest rates are usually fixed, and businesses may repay on a set or flexible schedule. This kind of loan is ideal for organisations that want maximum flexibility or for investment situations where the total cash required is unknown. It may be possible to secure the funds without providing added collateral, although interest rates and fees will be higher.

Business credit card

Even if you have bad credit, it may be possible to secure a business credit card to fund your organisation – although the interest rates and fees may be very high. The application process for these cards is usually fast, streamlined and does away with the need for piles of paperwork – in many cases you won’t even need a formal business structure to apply. Business credit cards are also great for re-building your credit if you pay off the balance every month. No added security is usually required.

Equipment financing

Equipment loans are ‘self-collateralising’ – they use the asset you’re financing as security, similar to a car loan or a residential mortgage. 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. No other collateral is required. Once you pay the loan back, the lender releases the lien, and you own the equipment outright.

Invoice financing

Also known as account receivables financing, this type of loan allows you to borrow against the value of your unpaid invoices and is best for B2B organisations. The lender will usually provide up to 95% of the invoice value within a few days or even hours of the bill being raised. You may still be responsible for collecting the cash from your clients, or the lender (also known as the ‘factor’) may collect on your behalf. If you collect, you must repay the lender on their schedule. If they collect, they will take back their advance from the client’s payment and then pass any residual sum (after charging interest and fees) back to you. Your invoices act as collateral for the loan, no other security is required.

Merchant cash advance

A merchant cash advance is available for businesses that accept customer payments by credit and debit card. You borrow against the value of your card sales. As your card sales increase, your borrowing limit goes up. Pay the loan back with a fixed percentage of your card sales on a daily, weekly or monthly basis. Your sales act as security for the loan, no added collateral is required.