From bad to good: Transforming bad credit when you need a business loan

7 Mar 2024

Bad credit doesn't have to hold you back from getting a business loan. Read our ultimate guide to find out what you can do to transform your credit.

someone looking at their credit rating document

Lending is often crucial for jump starting a new business, but what happens if a business has bad credit?  

Poor credit can lessen your lending options, making it essential to transform your credit. But first, is a bad credit business loan the right solution for you?    

What is a bad credit business loan? 

Bad credit business loans are loans tailored for businesses with low credit ratings. 

Traditional lenders (ie, large banks and financial institutions) tend to rely heavily on credit scores when assessing a lending applicant’s creditworthiness. While this makes sense for risk mitigation in traditional financial settings, it does little to assist growing businesses in gaining the funds needed to expand. 

For blooming businesses, bad credit business loans present both advantages and risks to consider. In terms of benefits, these loans can provide your business with:

  • Quick access to capital: If your business has bad credit, bad credit business loans offer a simple way to obtain crucial funds that are inaccessible via traditional lending channels. 

  • Credit improvements: These loans can help you improve your credit through timely payments, making it easier to borrow and secure funds in the future. 

  • Business growth: With the assistance of a bad credit business loan, you can keep your company growth steady without stressing over a lack of funding. Just keep in mind, the higher interest rates and the smaller borrowing amounts common to these types of loans may get in the way of scalability. 

As far as risks go, there are a few important factors to bear in mind, including: 

  • Higher interest rates: Due to the perceived higher risk of lending to companies with bad credit, bad credit business loans typically come with significantly higher interest rates compared to traditional loans. This can significantly increase the overall cost of borrowing and strain your business's cash flow.

  • Stricter repayment terms: Lenders may enforce shorter repayment terms for bad credit loans, meaning you'll have less time to pay back the loan, potentially leading to higher monthly payments. This can be challenging for businesses with limited cash flow.

  • Collateral requirements: To secure the loan, the lender might ask you to offer personal or business assets as collateral, putting these assets at risk if you fail to make payments.

  • Impact on future credit scores: Missing payments or defaulting on the loan can further damage your business credit score, making it even harder to secure financing in the future.

Bad credit business loans may be the right answer for you, but the fact of the matter is that entrepreneurs with poor credit can encounter serious challenges when seeking to borrow from traditional lenders. So, why not turn that bad credit into good credit and open your business up to more lending options?  

Transform your credit in time for a business loan

The options to repair your credit history are better than ever before. Try taking these quick steps to get your company in a better position for loan access: 

  • Face the facts: Get an up-to-date credit checkup to find out exactly where you are today. You might be doing better than you thought! 

  • Conquer past dues: Settle any late payments, outstanding debts, or overdue bills. Start with the oldest ones first. Negotiate payment plans and stick to the payment dates moving forward. 

  • Build a strong payment history: Use a secured credit card specifically designed for businesses with bad credit and make on-time, regular payments. Even small, consistent payments build trust with lenders.

  • Diversify your credit mix: Don't rely solely on credit cards. Explore secured loans like equipment financing or inventory financing. 

  • Monitor and maintain: Regularly monitor your credit reports for any errors and address them promptly. 

Follow these steps and you’ll quickly see the number and quality of loans available to your business increase. 

Find the right business loan for you

Finding the right lender starts with easy-to-use lending tools. 

With lending tools like business loan calculators and business loan comparisons, you can weigh your different lending options to find the best terms and rates for your specific needs.

As a business owner, diligent lending research can be the key to discovering accessible funds and obtaining a business loan with fair terms, no matter where you are in your credit journey. 

At Funding Options by Tide connects you to a wide range of solutions for loans, bank accounts, and credit cards. Our platform simplifies the process of finding the right business loan for your growing business by matching you with suitable lenders.

Find the funding you need today with Funding Options by Tide

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options
Funding Options

Editorial team

Business Finance

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