Business loans with bad credit

A poor credit history can make it harder to get a loan. If you believe your credit file is negatively affecting your loan applications you need to take immediate action or consider alternative lending options.

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Business loans with bad credit

A poor credit rating can make it harder to get money through traditional lending sources. But there are things you can do to improve your credit score, and there are some funding options out there that are available to businesses with bad credit.

If you need business debt advice, visit the Business Debtline.

What is a bad business credit score?

Your business credit score paints a picture of your business’ financial health and creditworthiness. The score – out of 100 – is calculated using your payment and defaults history, how much debt you have, whether you’ve come into any legal issues, the level of risk associated with your customer base and even your sector. 

Small businesses that have applied for business funding, taken out a small business loan or used a business credit card to pay a bill will have a credit rating. A history of not repaying loans on time, whether partially or in full, can result in a bad score.  

Previous credit checks will also show up on your credit file.  

When applying for finance the lender will look at your business credit score, and potentially your personal one. A bad score can lead to higher interest rates and less favourable terms, or in the worst-case scenario the rejection of your loan application.

Regardless of whether you have bad business credit, you may need to offer a personal guarantee. This means you’ll have to repay the loan if your company can’t.

Can I get a business loan with bad credit?

Your business may have experienced an unexpected cash flow problem and wasn’t able to meet its loan repayments. These things happen.  

You might find that your business’ finance options are limited, but as long as you commit to gradually improving your score by paying off outstanding debts and proving reliability, new lending opportunities will open up to you. 

You may struggle to get funding if you can’t demonstrate your trading history; many lenders deem businesses with no or a short trading history as too risky to lend to. 

It’s also important to remember not to apply for several loans, as this will further tarnish your credit score. With this in mind, it might make sense to use a credit broker or a lending platform like Funding Options, where you’re matched with lenders based on your particular set of requirements and financial position.  

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Alongside business loans for bad credit, there are various grants and government initiatives out there to help businesses survive. After all, making a business work rather than stop trading can keep people in employment and benefits the economy.

What are the loan options for a business with bad credit?

Again, it’s still possible to get a bad credit business loan.  

Your ability to get a small business loan hinges on your business plan and your ability to prove that your cash flow situation will remain healthy over the long term. 

If your business is willing to offer business assets as collateral, a secured business loan might be a route worth exploring. If approved, the lender could agree to lend you money to a ratio of the value of the asset or assets you put forward as security.  

Although there’s no guarantee that you’ll be approved, unsecured business finance, such as a merchant cash advance, could be another option. Unsecured finance tends to come with higher interest rates and you or another director in the business will have to cover missed loan payments if your business defaults.

Peer-to-peer (P2P) lending is another route. You’ll be expected to provide details of your turnover, profit and loss accounts, and have a12-month trading history. 

As a business with poor credit, you’ll need a robust business plan with convincing cash flow projections. If you do pass the acceptance criteria your loan will be published on the P2P platform. Investors will be able to offer small amounts that – in total – could meet your target borrowing amount.

Business credit cards with bad credit are also on the market, and might provide you with the opportunity to avoid paying very high interest rates. Paying back your credit card in full every month is a great way to rebuild your credit history. Your credit limit is likely to be low at first ( <£1,000), and the APR will be high. 

What could impact my business loan eligibility?

Business CCJs: Lenders take into account how many CCJs you have, their value and the frequency at which you have received them.

Winding Up Orders: If you’ve been subject to a Winding Up Order in the past (even if it was rejected), this could affect your finance applications.

Visible financial performance: Lenders may also look at public data about your company. Even if you don’t believe the information is correct, some of the more traditional lenders will make assumptions based on your net worth and whether or not you hold a healthy amount of cash in your business.

Director’s history: Failed or underperforming businesses with a common directorship could influence the way lenders perceive your business.

People behind the business: A personal history of IVAs, debt management plans (or anything) similar could impact your ability to get finance.

How can I improve my credit score?

It’s advisable to start improving your credit before accumulating more debt. Here are three key steps you can take to improve your business credit score.

1. Audit your credit report 

Review credit reports regularly to identify pitfalls. Credit reports are created by credit reference agencies. Lending data is used to inform your credit report and you’ll receive a score which reflects the chances of you being able to repay a loan. 

2. Pay for everything on time

Failing to pay back loans or credit cards on time can hurt your business credit score. Credit agencies who supply the credit rating will have visibility into your business's financial history, including any default payments and CCJs. 

3. Credit card applications

Remember that every credit application you make will be visible on your credit report. In other words, when a lender rejects your application, it could harm your credit score. This includes credit card applications too.

Funding Options helps UK firms access business finance. We work with over 120 lenders offering dozens of lending products. You can use Funding Options to see what your business could be eligible for, without affecting your credit score.  

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Joe Morley

Joe Morley

Head of Unsecured Lending

Joe has worked in the alternative lending space since 2015. During this time he has helped hundreds of SMEs access millions in essential funding ranging from long-term asset-backed lending to short-term unsecured revolving credit lines and beyond. In his role, Joe manages and supports a large team of Credit Finance specialists.

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