There are plenty of misconceptions about business loans, including that you can’t apply for one if you have a bad credit history. Find out what’s really true.
If you have a bad credit history, getting a business loan may seem out of your reach. As it turns out, the idea that you can’t get a business loan with a bad credit history could be a myth.
Many small business owners avoid business loans, even though this option may be an excellent way to grow your business without losing control of your cash flow.
Take a look at some common misconceptions about business loans.
Myth #1 You can’t get a long term business loan with a bad credit history
This is not always the case.
There may be a number of options to get a business loan with a bad credit history over a longer term than 3 to 36 months. Many reputable lenders will likely work with you to help your business apply for the loan it needs, even if you don’t have a gold-star credit history.
Credit scores will come into play when you apply for a business loan, but they are not always the be-all and end-all.
If you have a bad credit history, then a secured loan or chattel mortgages may be an option. These types of loans generally mean that if you don’t make the repayments, the equipment can be returned to the lender and sold to help recoup the money borrowed.
Unfortunately, many banks do not offer these types of loans if you have a bad credit history. This leads us to myth #2.
Myth #2 You have to borrow from a bank
There are a number of lenders that focus on providing easy business loans for businesses with a bad credit history.
Banks can sometimes be inflexible and hard to deal with and may have tighter lending criteria, so finding an alternative lender can be a saving grace. Just make sure you do your research that will help you find a suitable lender with good online reviews and high ethical standards.
Myth #3 Taking out a new loan with a bad credit history will make your credit even worse
While increasing your borrowing may have an impact on your credit score, in the long run it may also be beneficial. If you make your repayments regularly and your lender considers you reliable, it could help to raise your credit score. It may take a while, but a great way to help re-establish trust in your business’ credit score, is to pay off another loan in accordance with the terms of that loan contract.
Myth #4 Getting a business loan can take a long time
Again, this may certainly be the case with the major banks but urgent business loans, even for those with a bad credit history, can be quick and easy through other lenders. Some online lenders may have your business loan approved in under 48 hours, provided sufficient documentation is received and all their normal lending requirements are met. Digital and automated systems seem to have cut down much of the time and bother out of approving loans.
Myth #5 Paperwork overload
The automated systems that are now in place seem to strip away the reams of paper that used to be necessary to get approved for a business loan. Of course, this requirement may vary according to the loan and the lender.
Many online lenders these days may not need you to fill out endless forms because everything might be accessible online. You may even be able to sign most of the required legal paperwork for your loan electronically.
Myth #6 You need a lot of collateral
Naturally having some capital behind you shouldn’t hurt, but most lenders won’t need you to have huge amounts of money in the bank these days, before you apply for a loan.
Again, it depends on the loan, but many lenders understand that small businesses don’t always have a lot of collateral, especially in their early days. Shop around and you may find a lender willing to work with what you have.
Business loan myths busted
When you talk about business loans with friends and family, they may try to convince you that what you want is not possible, for various reasons. However, these days there are plenty of simple ways for small businesses to access business loans, even if they have a bad credit history.
Reach out to a flexible lender that can offer personalised service, can talk about the funds you need and discuss the business loan options that might suit your business needs. You might be surprised to find out there could be an ideal solution for your circumstances.
Finance One Commercial is a non-bank lender that provides opportunities for Australian small business owners to access business equipment finance. Get in touch to find out more.
Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information.