Credit scores are one of the most important indicators of the financial state of small businesses. Therefore, getting a low credit score may affect your ability to get business loans. Getting small business loans with the wrong score might be a very difficult task. Banks and other funding sources are concerned with reducing the risk and will not lend to those who are unable to pay borrowed money. Below is a discussion on the difficulties related to getting business loans with a bad credit score. Click here to get a better understanding of the same.
Access to adequate finances is very essential as a business owner. Meanwhile, bad credit will not stop you from requiring financial assistance regularly. This creates a common problem for business owners. They have to get funds to keep their business running in good shape, while they may not be able to get funds required due to their bad credit score.
Why Your Credit Score Matters
Although you apply for funds to grow your business, most lenders analyze your credit scores while evaluating the small business loan application. The credit score is decided by several factors known as 5Cs— capacity, conditions, collateral, character, and capital. These factors tell them how responsible you are in paying back your debts. Besides, it gives them an overview of the number of payments you made on time, your debt-to-income ratio, and more. The most common credit-scoring model is the FICO score.
Below are the different ranges of FICO score:
- Exceptional (800 – 850)
- Very good (740 – 799)
- Good (670 – 739)
- Fair (580 – 669)
- Poor (300 – 579)
A FICO score between 300 and 629 is referred to as bad credit. A low FICO score becomes a common reason for the rejection of the FICO score. Sometimes, you may be able to get a bad credit business loan from another lender even if your credit score is lower than the required score.
Getting a Business Loan with Bad Credit
It is possible to get the required capital to grow your business even if you have a bad credit score. Initially, understand your credit scores well. Next, you should research the options available with the existing attributes. There are several alternative financing options available. Consider the repayment terms, eligibility requirements, and the lender’s reputation. You can also read reviews and talk to the representatives of the concerned funding options.
Consider the above factors if you have bad credit and are looking to get business loans.