Bad Credit Business Loans for the Self-Employed

Bad credit and business loans might sound like a contradiction in terms, but there are borrowing options for the self-employed business owner who has blemishes on a business credit history. The key is to find a lender willing to work with you and find the properly structured loan with acceptable terms.

Non-Conforming Market

As the lending industry has grown more competitive, traditional lenders and specialized lenders both have developed products for a variety of borrowers who previously would have found financing hard to come by. This non-conforming market, so named because borrowers in this category don’t qualify for traditional loans, can range from start up businesses to the self-employed seeking business loans with bad credit.

It’s important to understand that if you are in this niche, if you are self-employed and seeking bad credit business loans, you will pay more than traditional borrowers. Interest rates are based in part on what the bank must pay in interest for its borrowing and in part on your credit worthiness. The worse your credit, the higher interest you will pay.

Improving Your Chances

The first place to begin obtaining bad credit business loans is not with a lender but with yourself. Check your credit history to ensure there are no mistakes on it that lower your credit score more than necessary. Clean up any outstanding bad debts. Have a clear business plan that explains what you need to borrow for and how you will be able to pay it back.

The goal is not just to get business loans with bad credit; you can do that. The goal is to get the best interest rate and loan terms you can.

Secured Business Loans

The simplest bad credit business loans to get when you are self-employed are secured loans. A secured loan, as the name implies, has collateral securing it. Collateral can range from cash to an unencumbered asset in your business. You can also find a co-signer with good credit to apply with you.

Merchant Loans

If your business accepts credit cards, this can be turned into a form of bad credit business loans. Factoring companies, also called cash advance firms, will give you cash now for your credit card receivables minus a fee for their risk. While not technically lending - they are advancing you your promised credit card payments - it serves the same function. Many cash advance companies need only a 60-day history of your credit card sales and your business credit won’t enter into the picture.

Other Options

There are still other avenues open to obtain business loans with bad credit history, including:

  • Vendor Financing - Often, if you routinely buy equipment from a vendor, they will finance the purchase of it and are likely to have less stringent qualifying requirements.

  • Personal Loans - If your personal credit history is strong, consider a personal loan that you then loan to your business.

  • Credit Cards - While there are pitfalls here - high interest rates, too many cards can hurt your credit score more - consider a business credit card, which is easier to obtain than a bank loan. This is not a long-term solution, but managed well, business credit cards can get you over a rough patch and help improve your credit history, if you pay them on time.