Everything You Need To Know:
Business Credit & Personal Credit Improve Your Credit Score
A survey conducted for Experian in 2014 asked directors of UK SMEs about their business’ credit situation. Their results found that small businesses know little about their credit rating, what influences it and how to improve it. Just 13% of directors could identify all the key factors that influence the credit rating of a business. A shocking 59% had never checked their commercial credit score.
When applying for finance, lenders will check your business credit score with a Credit Reference Agency, indicating your business’s reliability in terms of past / late repayments.
As a business director, it’s also important to be aware of your personal credit score. If your business has bad credit, but you as a director have good personal credit, you will be more likely to access bad credit business loans.
When sole traders apply for finance, lenders will inevitably look at personal credit. With startups that don’t have a long business credit history, lenders will also take into consideration creditworthiness of all directors. For SMEs, lenders review a business’s financial history, previous loan agreements, defaults, CCJs and credit card payments.
Improving Your Business Credit Score
Keep on top of your business’s credit regularly, monitoring all information on the record. Ignorance is not bliss - the more you know about your credit, the better.
- Inform Companies House, Credit Reference Agencies, directors and suppliers of changes to your business status and location. Inconsistent information provided will make your business appear unreliable, increasing your risk in the eyes of a lender.
- Always pay invoices promptly and on time. Failure to do so can damage your business’s credit score.
- Always submit business accounts and files in time by the deadline set. Late filing indicates financial issues, which can also taint your credit history.
- Limit your credit applications, as too many applications in a short period can raise concern that your business is struggling financially, and to secure funding.
- Should County Court Judgements (CCJs) occur, ensure you pay them on time.
- Proactively inform Credit Reference Agencies about relevant business information. Validating the information on your business’s record is of high importance during credit checks, so the more data available – the better.
Bad Credit Business Loans Personal Guarantees & Guarantors
There’s no denying that financing your business can be difficult if you have a poor credit history. Traditional lenders make it near impossible for smaller businesses to access finance with their strict funding requirements, made even harder for businesses with bad credit.
We know how frustrating it can be when your credit file is letting you down. If you’re searching for business loans for bad credit, at SME Loans we have lenders on our panel that consider all credit scores, and will base their decision on your business performance. Our lenders will analyse your company as a whole, taking several factors into account.
Irrespective of how well a business may be performing, lending money to a business with an adverse credit history, county court judgements (CCJs) and late credit card payments, is usually seen as too much risk to a lender.
However, over the past 10 years there has been a huge increase in the number of lending platforms and lenders available to offer alternative methods of lending to businesses. More and more lenders are choosing to provide finance for high risk businesses, which means you can get a business loan with bad credit.
Every business and application is different, and it will very much depend on your individual circumstances and ability to use forms of security to lower the risk for the lender. All lenders require security when providing finance, in order to minimise the risk of a business defaulting on repayments.
At SME Loans we work hard to maintain our high approval rate and try to ensure our lenders say yes to each application (whilst still lending responsibly, of course). We know that one rule doesn’t fit all so we take the time to analyse each business on a deal by deal basis.
Personal Guarantee VS Guarantors
If your business has bad credit, you can still apply for a loan through SME Loans. Where the company director has strong personal credit, the lender will require a signed personal guarantee.
This legally binding agreement personally guarantees that if your business defaults on loan repayments, you as the business director will be personally liable to pay the money back to the lender.
In some circumstances, companies applying for bad credit business loans will be asked to add a guarantor to their application. This is particularly true for larger loan amounts, where two guarantors that are homeowners may be required. Even though the loan is unsecured, there will need to be some form of guarantee secured against the guarantor’s home.
Will My Business Pay More For Having Bad Credit?
Unfortunately, businesses with bad credit will typically be charged a slightly higher rate than those with a stronger credit score. However, the agreed rate will depend largely on the additional security you are able to offer to the lender.
Should I Get A Bad Credit Business Loan?
Think Before You Spend…
Using debt financing can help to grow your business, but it can also harm your business if you aren’t careful. Your business can suffer when you get into a negative cycle of borrowing, making your business less profitable and stunting growth.
With this being said, if you are confident in your business plans and operations, and don’t want to be held back by past mistakes, then it is worth applying for a bad credit business loan.
Contact the Business Debtline if you need advice or are unsure whether to proceed with debt financing.