by Dave Fitzgibbon

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Finance options for companies with bad credit

Published on Business stage: Scaling, Starting, Thinking, Unlocking

How can you access external finance with bad credit? A issue many companies are eager to have a solution to, but don’t know what options are available.

Traditional bank loan approvals have been in decline in recent years, with more stringent lending criteria in place and poor credit status can be a barrier in finding a bank who is willing to approve your business loan application.

What you may not know, is there are several options for those with bad credit, it is just knowing where to apply.

There are many alternative lenders who specialise in “high risk” loans. Simply put, these are loans to clients with poor credit.

Having bad credit does increase the perceived risk to the lender, increasing the cost and interest rates of the facility.

The potential increases in cost do vary between lenders based on several factors such as; overall credit score, current financial commitments, outstanding loans and credit history.

There are many lenders who favour bad credit loans, this is their niche market.

Lenders target specific market audiences and demographics, with some preferring low loan values in high volumes, or large loan values in low volumes. Or they target specific industries and loan purposes, such as asset finance or vat and tax finance. Many lenders do focus on poor credit business loans.

What factors influence your credit status? There are a wide range of things which affect your credit status, with some having more effect than other.

Generally, the main factors are:

• Repayment history
• CCJs and/or loan defaults
• Debt to income ratio
The overall effect of the above will vary between lenders as each lender has their own affordability criteria.

Will bad credit stop you from getting a business loan? In short, it doesn’t. Even with bad credit, many companies and individuals can still access finance facilities.

However, it does:

• Limit the number of lenders you can apply with
• Make it more difficult to find a lender willing to accept your application
• Make it more expensive in terms of repayments and interest

To help with your affordability assessment, some lenders will accept security on loans or guarantors to reduce the impact of your credit status.

Where can you get a business loan with bad credit? Navigating through the large number of lenders within today’s market can be a daunting task.

It is time consuming and can be a deflating experience if your applications are declined, which is likely if you are applying with the wrong type of lender.

There several steps to follow to help increase the likelihood of your applications being accepted:

  • Do your research – which lenders target “bad credit” loans
  • Do not apply with every lender you can find at once as this impacts your credit status
  • Read all documentation thoroughly to make sure you are making informed decisions
  • If you are a sole trader, find out what your personal credit score is as many lenders look at this
  • Seek expert advice on your options
  • Check loan criteria to make sure the loan is the best fit for your needs, think about
    o Minimum annual turnover
    o Minimum/maximum loan amounts
    o Outstanding debts
    o Loan security
    o Loan terms

How can you improve your credit status? Although it sounds like catch 22, one of the quickest ways is to obtain more credit, repay on time and stick to your credit agreement.

Your behaviour is looked at by lenders and paying in full and on time shows you are a trustworthy customer who sticks to their agreement and this is what improves your credit status.

When taking out more credit you do need to think about your debt to income ratio.

Even if you pay on time, with high levels of debt in comparison to income, you are unlikely to pass affordability assessments.
If you are unable to obtain more credit it is better if you stop applying, try to pay off any outstanding debts (on time) and start reapplying 6 months after your last loan rejection.

Some lenders favour poor credit applications

  • Do you know which ones?
  • Do you have time to research and seek these out?
  • Are you willing to further effect your credit history with a whole host of declined applications?

If you are unsure on how to progress, where to look or who to apply with then your best course of action would be to use a finance broker.
There are many advantages to using a finance broker, the major advantage is that a good finance broker will have bad credit lenders in their funding pool.

But more importantly they know which lenders are more likely to accept bad credit loan application based on the applicant’s credit status, loan requirements and company status.

RLA Capital are a Chester based company who assist a wide range of businesses with traditional and bespoke professions finance facilities and business loans to suit their requirements and circumstances. For more information click here

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