Short-term business loan, bad credit? Credit can be a contentious subject when it comes to borrowing, and it’s often a source of frustration for many.
Problems with credit can restrict us from many conveniences, and it can sometimes feel like we’re trapped; unable to borrow, but also unable to prove you can be trusted with a loan.
As with other loans and credit, short-term business loans and bad credit can struggle to mix, and bad credit can end up complicating the process of even getting your foot in the door with borrowing.
Let’s take a closer look at credit and how it affects your borrowing.
What is credit?
Credit is essentially a financial trust system. Think about using a credit card: when you ‘buy’ something with that card, you aren’t actually handing any money over yourself.
Rather, you’re paying with the promise that you’ll give the money back to your credit card’s provider, whether that’s a bank or building society, or a credit company.
Of course, credit is a system that can be easily exploited, which is the basic reason for credit scores. These scores give others a general view of how much somebody can be trusted with credit and how solvent they are, i.e. how capable they are of paying back on time money they’ve borrowed.
Having good credit is beneficial in that it often unlocks bigger loans, overdrafts, and credit limits, since the providers in question see you as a low-risk, trustworthy customer.
Can a business have a credit score?
Yes, just like individuals, businesses can have their own credit scores. This functions the same as individual scores in that they provide an at-a-glance picture of your business finances and trustworthiness
However, it should be stated that these scores are more visible than individual scores.
Pretty much anybody can find a business credit score.
This is important because the borrowing of a business usually has much larger implications than that of an individual, dealing with larger amounts and greater risks.
A business turning insolvent often has larger repercussions than an individual becoming bankrupt, with the effects knocking on to other businesses with their own debts to pay.
How do you get bad credit?
Bad credit comes about as a consequence of several factors.
The most straightforward (and perhaps the most likely) is missing or being late with loan and credit card repayments. These go on your business score and make it appear, from the outside, that you’re not to be trusted with speedy repayments.
Of course, for businesses that experienced a one-time period of financial hardship or for those who experience unfortunate seasonality, this might not be justified. This is why credit scores aren’t always entirely fair, and can hold back a business run with honest intentions.
Other ways to end up with bad credit are to have a general level of high debt or being late in filing your end-of-year accounts with Companies House.
Individuals with bad personal credit may find that their score also knocks onto their business, even if you keep your personal and business lives separate.
This could be because your finances are closely intertwined no matter how you slice it, as is the case with sole traders, partnerships, and those running very small businesses.
Additionally, in the case of something like a partnership, you may find that even if your scores are squeaky clean, a very poor score for your partner might complicate things.
Can I get a short-term business loan with bad credit?
Even if your business is suffering from poor credit, there are options available to you.
It’s true that the effects of a poor credit score can’t be escaped entirely, and having a low score does mean that your terms won’t be as favourable as they could be. However, you’re not barred from a short-term business loan just because your score is lower than is ideal.
In fact, when used wisely, a short-term loan could be used to help repair your credit score.
Lenders will look at a range of factors when determining a loan application, not just your credit score, and some will have specific options set aside for businesses struggling with their credit score.
If in doubt, it’s best to use a business loan provider who can check your eligibility and give you an easy answer as to whether you can borrow. A short-term business loan and bad credit can coexist if the general health of your business and its directors is good and you can demonstrate that repayments won’t be an issue.
It might be that you can secure the loan against an asset for a more ‘solid’ agreement. This means that the asset(s) are used as collateral to offset the risk. This does place the risk more on your side than the lenders, but if you’re sure about taking out the loan, it’s up to you to ensure you don’t lose your assets!
Once you’ve secured your short term business loan, ensure that you make repayments on time and in full. This not only keeps you out of hot water with your lender, but it also proves that your business can be trusted with repayments. As a result, your credit score will improve, and future borrowing—should you need it—will get easier over time.
Short-term business loan bad credit circumstances – the experts can help
If you’re struggling with bad credit, talk to Business Finance House.
Give us the full story and we’ll give you sound advice founded on a mountain of experience in business finance on how to get a short term business loan. It could be that things aren’t as bad as you think, and more often than not we can help you find a way through.
We operate nationally but our business loans in Liverpool and Cheshire allow us to take advantage of local knowledge hopefully giving us a competitive edge. To see if you’re eligible to borrow or to get expert guidance, contact us today.
