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4 Simple Steps to Repair Bad Business Credit

bad credit report

Business credit is a rose with thorns. The beauty of it is that you can rely on credit to get the business capital you need at the time that you need it. This can help your company respond quickly to changing market conditions, and get in early on new business opportunities.

The downside, however, is that if you miss payments to creditors, it leaves a mark on your credit score. The result may be the inability to borrow money in the future, lease real estate or equipment, or make sizable purchases on credit. All of these can act as direct hindrances to the growth, and possibly even the survival, of your business – even after you’ve dug your way out of debt.

Fortunately, there are a few strategic steps a small business owner can take to repair their business credit score. Let’s take a look at a few of the most important ones:

1. Communicate with your creditors

According to the Houston Chronicle contributor David Ingram, the first step to paving a road to better business credit is simply to get in touch with your creditors. At the end of the day, they want your money just as badly as you want to give it to them, so they’ll most likely work with you on creating a repayment plan that makes sense given the circumstances.

“Creditors may suspend your accounts and allow you to pay what you can each month until the debt is paid,” Ingram wrote. “Others may accept a settlement offer, closing your account for a lump sum payment that is lower than your total balance.”

The resolution doesn’t necessarily have to entail one of the two options above. The bottom line is that you and your creditors can typically reach an agreement, as long as you’re transparent with them about your current situation.

2. Build credit with the help of your suppliers

With a few exceptions, no business really survives in a vacuum. The vast majority of companies rely on third-party suppliers for raw materials, ingredients or wholesale goods. While some suppliers expect payment prior to delivery of these supplies, others will offer “trade credit,” according to Nerdwallet contributor Teddy Nykiel – and this very standard practice may actually be able to help you clamber out of bad credit.

Establishing trade lines essentially gives your small business the option to pay several days or weeks after receipt of the materials.

“If you have this type of accounts-payable relationship, ask your supplier to report your payments to a business credit bureau,” Nykiel wrote. “Your business credit score will get a boost as long as you stick to the terms of the trade agreement.”

Over time, this can help improve your overall credit score.

3. Make payments on time

It may sound like a no-brainer, but more often than not, late or missed payments are the reasons that a small business ends up with a bad credit score. Sometimes small business owners will pay late only because they want to have a certain amount of merchant capital available to them in a given moment – perhaps because they foresee a big expense up around the bend that could lead to significant return on investment, or maybe because they prefer to have that safety net available at all times.

At the end of the day, however, the best safety net for a small business is good credit, and you’re better off getting a cash advance on a loan than you are putting off on-time payments.

4. Take out a small-business loan

Late loan repayment may have been what got you into your credit pickle in the first place, so why in the world would anyone with bad credit try to take out a small business loan? Furthermore, is that even possible to do with bad credit?

In response to the first question, taking out a small business loan can actually be your company’s salvation. Often, bad credit is the sign of past indebtedness, or old mistakes that left a dent in your business FICO score. It could have even been the result of EIN theft, which despite reflecting poorly on your company, is in no way your company’s fault.

In response to the second question, regardless of the reason that you’ve ended up with a bad credit score, if you can feasibly repay a small business loan on time, there are plenty of alternative lenders willing to finance your business, despite a less-than-stellar credit score.

“Eliminating your existing debt is a positive first step, but your business will need to continue to borrow money to strengthen your credit rating over time,” Ingram wrote in the Houston Chronicle. “Remember that borrowing money is not necessarily a bad thing; a problem only arises when you’ve borrowed more than you can reasonably repay.”

If you’re confident in your company’s ability to pay off new debts, take out a small business loan. It’s one of the best ways to enhance your business credit score.

How to Get a Business Loan with Bad Credit and No Collateral

Bad Credit Business Loan

Small business owners can develop a successful, vibrant organization and still deal with common problems like bad credit and a lack of collateral. Does that mean your business can’t secure a loan?

While having good credit and collateral on hand can help you secure a loan in some instances, there are established, dependable alternative lenders – like National Funding – that can work with a wide variety of financial situations.

The problems you may encounter

Credit is a long-term situation, and items as old as seven years can have a major impact on your rating. Many times, people and businesses have bad credit because of limited resources, not conscious decisions that lower their scores. Both your personal credit score – calculated on a scale of 300 to 850 – and your business credit score, usually measured from 0 to 100, play a role for small businesses.

Turning the corner financially – by starting a successful small business, for example – doesn’t erase a credit score. You have to contend with your rating until items are resolved or fall off your report. That means complications when seeking loans from traditional lenders, like banks and credit unions. These institutions place significant weight on small business owners’ credit scores when deciding whether to lend money to a given company.

Collateral is a much different subject than a credit score, although its presence or absence has a similar impact on the loan decisions made by banks and credit unions. Some businesses simply have collateral that is easily used to secure a loan, while others don’t. Similarly, some business owners have personal possessions they feel comfortable putting on the line, but others don’t have that luxury.

While the Great Recession is in the rear-view mirror, the impacts of that economic downturn on banks and similar lenders led to the development of more conservative lending practices that continue to this day. Many small businesses that could have secured a loan in the past from traditional lenders cannot any longer.

A lack of collateral and a low credit score can mean extreme difficulty in securing a loan through more traditional means. Instead, your business needs to consider working with a more flexible and responsive alternative lender.

Overcoming these obstacles

Business loans for poor credit aren’t impossible to find. In fact, working with an alternative lender like National Funding can mean avoiding a number of the frustrations and other issues that arise when dealing with a traditional lender. As opposed to the severe and frequently hidden limitations on lending put in place by banks and credit unions, National Funding offers a clearly visible baseline standard that businesses can use to determine if they can start the process.

Does your business have:

  • A full year of operations under its belt?
  • At least $100,000 in gross yearly sales?
  • Three months’ worth of bank statements?

By meeting these qualifications, your company is starting off on the right foot when applying for a loan through National Funding. You don’t need to worry about the state of your business or personal credit score, nor the availability of qualifying collateral.

Of course, traditional lenders don’t only look at credit scores and collateral when determining creditworthiness. They may also require many months or years of bank statements, tax forms, detailed business plans and other documents that may be difficult to assemble to their exacting standards.

Working with National Funding means avoiding these lengthy, time-consuming and sometimes-painful processes in favor of a more direct approach. You can apply for a business loan between $5,000 and $500,000 through our easy, no-obligation application process and a decision in as little as 24 hours.

Small Business Loan Requirements: Traditional vs. Alternative Lenders

traditional and alternative lenders

In a perfect world, obtaining a working capital loan for your small business would be as simple as asking and receiving. However, it’s important to remember that lenders don’t simply hand out money to just anyone.

Lenders are taking on risk by making funds available to small business owners. Therefore, they will analyze certain criteria in an attempt to determine if a loan is too risky. At the very least, these criteria will influence the parameters of the loan – amount, term length, interest rates, etc.

By understanding the following small business loan requirements, you can make yourself a more attractive borrowing candidate.

What do traditional lenders require?

What criteria take precedence can differ from lender to lender, but there are some factors all traditional lenders will consider. These include:

  • Amount
  • Credit
  • Cash flow
  • Collateral

The higher the amount, the more risk a lender is taking on. Meanwhile, a poor credit history could indicate a borrower who may not be able to make repayments, increasing the risk further. Limited cash flow would support this viewpoint, and a lack of collateral to cover a loan default often acts as the death knell for small business owners seeking a loan.

However, the days of depending on traditional financial institutions for small business loans are over. In today’s marketplace, borrowers have more options than ever thanks to alternative lenders.

What do alternative lenders require?

Alternative lenders like National Funding feature business models that differ from traditional banks and credit unions. This makes it possible for them to offer loans to small business owners who may otherwise not qualify.

For instance, National Funding offers working capital loans and merchant cash advances of up to $250,000. There are also bad credit small business loans for borrowers to consider.

And unlike traditional lenders, National Funding does not require borrowers to put up personal assets as collateral, since all financing is unsecured.

Along with simple, straightforward applications, variable repayment terms and the ability to obtain cash in as little as 24 hours, the benefits of business financing from an alternative lender are clear.

Tailored business solutions

Regardless of what type of lender you utilize, the most important thing is working with professionals who understand your specific needs as a small business owner.

Minimal paperwork, quick turnaround, flexible repayment options – these are all essential in the small business marketplace. You owe it to yourself and your business to borrow from a lender who recognizes and supports this.