Do a search about business loans and bad credit and you will see result after result touting some way or another where you can fool the banks and lenders into giving you a business loan.
Follow those results and for the most part you will only end up poorer (paying those companies or individuals a fee) and still not getting the business loan you want or need.
Banks and lenders use credit histories and credit scores as a time saving measure. You request a loan, they pull your credit. If your credit is bad or below their threshold, they don’t waste anymore time on your deal request and can move on to other deals that have a better chance of getting funded.
I deal with entrepreneurs everyday that complain about how their bank or a private lender just won’t look at their deal because they have bad credit. I constantly hear the same thing:
“Why won’t they just look at the merits of my business and not focus so much on my personal credit as it is my business that will be paying the loan back!”
My answer is always the same:
1) That is how the financial markets work, and
2) If you want to get approved based solely on the merits of your business then find the right business loan that focuses only on the merits of your business.
Sounds simple and it really is.
Yes, there are business loans (and other types of business financing) that either do not look at your credit at all or if they do, do not place much weight on it (great for those credit scores that are borderline).
Let’s look at three examples:
1) Accounts Receivable (Invoice) Factoring: Your business writes an invoice for goods already shipped or delivered to your customer but you have to wait 10, 30, 60 days or more to get paid. Then, factor those invoices and get your cash today so that your business can pay its employees, suppliers or to complete that next job.
As your business has already completed the job and shipped the goods and is merely just waiting to get paid, the lender has no reason to even consider your credit history. Instead, they focus on the next cash event – which is your customer paying you. If your customer shows a strong promise to pay as agreed, then your loan request should be approved (without pulling your personal credit history).
2) Purchase Order Financing: Your business has already won over the customer and you have their job order in hand only to realize that your business does not have the cash on hand to purchase the materials and labor to complete that order.
Factor that job (purchase) order for up to 100% of the cash you need to complete it. When the job is done and you collect payment from your customer, you pay back the advance and keep the profits to be plowed back into the next deal.
Again, since your business has already demonstrated that it can win business, the focus of this loan approval is not based on your personal credit or the cash position of your company but in the next cash event – when your customer receives the completed order and pays you.
3) Business cash Advances: If your business accepts credit card payments from its customers, then your company could qualify for a business cash advance; based on your company’s ability to continue to get customers to purchase your goods and services.