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Getting a Business Loan Despite Bad Credit


You might think that getting a business loan despite having a poor FICO score is near impossible, but this is not true; it is possible and there are several ways to go about it. 

What is a FICO Score?

A FICO score is an assessment that was created by Fair Isaac Company, Inc. The assessment gives lenders an idea of your creditworthiness--in other words, an idea of whether you are likely to pay back the loan or not. 

Several things are considered for a FICO score total. Some of these things include: whether you have paid back previous loans, how much outstanding debt you currently have, whether you have a history of making your payments on time, etc. The better your FICO score, the more likely you are to be approved for a loan at a low interest rate.

There are some business loan options available for those with bad credit and low FICO scores, which may be applicable to your business. 

Higher Interest Rate Loans

Some credit institutions, such as small banks or credit unions, may consider a small business loan depending on how your business is structured. If you have bad credit, any loan will be at a high interest rate. However, if your business is structured as an LLC or a corporation, these institutions may not focus so heavily on your personal credit history. 

There are other lending operations available with the sole intent of lending money to those with damaged credit. This is a high risk type of loan with extreme interest rates attached.  Be sure to understand all terms of the loan before signing anything. 

Loans With a Co-Signer

Another type of loan to consider is one that requires a co-signer. These loans have a lower interest rate, but do require another party to apply with you. The second party must have decent FICO score and will be held liable if you stop making loan payments. 

This loan is risky for the co-signer, but might be an opportunity to rebuild your credit score. 

Bring in Investors

Another option for small, at-home business owners with poor credit is to bring in investors.  What this means is finding an interested party to invest money in your business in exchange for part ownership.  This is sometimes successful, and once your business is doing well, you can offer to buy back that portion of your business. 

Apply for a Collateral Loan

Another option is to apply for a loan that is based on collateral. This means that in order to secure the loan, you will have to put something up as collateral, such as a home or car. 

This type of loan may have a varied interest rate and can be risky, as you could lose your home if you do not make payments on the loan (and meet the terms of the agreement). Read and understand all the terms of the agreement before signing anything.

Securing funding for your business is possible, even with bad credit.  Be smart and do not make rash decisions.

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