How to Apply for a Bad Credit Business Loan

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Key Takeaways

A bad credit score makes it harder, but not impossible, to get a business loan
You may have limited options, but with the right steps, you can get approved
Focus on improving your credit profile
Specialist unsecured lenders, equipment finance providers and private lenders will support borrowers with bad credit
Be prepared to pay higher interest rates and fees for a bad credit business loan

Having poor personal or business credit scores can make the funding process more difficult for Australian businesses. However, there are still options and steps you can take to help you secure affordable financing. Here’s what you need to know:

Understanding Bad Credit

Most lenders assess both personal and business credit profiles when evaluating loan applications from SMEs. Credit scores below 550-600 can be considered “bad” or “poor” by lenders, depending on their credit guidelines.

A poor credit score is a red flag that tells potential lenders that your business has a higher risk of defaulting on a loan. As a result, business owners with a bad credit score may face:

Higher interest rates
More declined applications if they choose mainstream lenders
Lower maximum borrowing amounts
Stricter security requirements
Shorter repayment terms

The lower your credit score, typically the more expensive and limited any financing may be. However, applying to unsecured lenders who specialise in bad credit applications or private lenders who don’t require high credit scores can result in a loan approval despite a poor credit history.

What is a Bad Credit Business Loan?

Bad credit business loans refer to loan products designed for business owners who have poor credit scores, limited credit histories, or other issues that make it difficult to qualify for traditional business loans.

Lenders providing these loans evaluate other factors beyond just credit scores and reports. They look at the company’s revenue, cash flow, or security when determining whether to approve an application.

While interest rates are often higher, bad credit business loans allow business owners to access capital that may otherwise be unavailable through traditional lenders.

Strategies for Bad Credit Borrowers

If your business has struggled with defaults, late payments, or other credit issues in the past, these strategies can improve your chances of qualifying:

Check Your Credit Report: Obtain your latest report from credit reporting agencies like Equifax and check for any potential errors bringing down your score unnecessarily. Dispute and resolve these before applying for loans to improve your chances of approval.

Improve Your Credit Score: Take steps to improve your credit score as much as possible. You can pay your debts regularly, reduce your credit utilisation, and avoid making too many financing enquiries while you haven’t ironed out your proposal yet.

Enhance Business Revenue and Cash Flow: Before seeking financing, take steps to increase your business revenue. Negotiate better payment terms with clients, pursue debt collection, and look for ways to boost profitability. More consistent revenues and better cash flow can strengthen your chances of getting approved.

Consider Providing Security: Putting up assets like property, equipment, or vehicles as security reduces risk for lenders and can make approvals more likely. Gather all the necessary documents proving your ownership and the asset’s value before applying.

Look at Private Lenders: Non-traditional lenders are often more open to providing bad credit loans than major banks. Be aware, though, that rates are usually higher than what is offered in banks.

Knowing Your Choices

If you have a bad credit score, not all financing options are available to you. Before you lodge an application, ensure that you know the types of loans you can pursue:

Secured Term Loans

Many lenders will accept bad credit loan applications if there is a significant asset involved. High-value assets like commercial real estate and machinery can provide that added layer of safety for lenders.

Unsecured Term Loans

Although less common, unsecured bad credit loans are also available. However, you are not likely to get approval from banks.

Equipment Financing

These loans are secured by the equipment being purchased, so many lenders allow borrowers with bad credit to access them.

Invoice Financing

This line of credit involves borrowing against your outstanding customer invoices. You can get fast access to cash as the accounts receivable act as security.

Building Your Loan Proposal

Once you’ve taken steps to address past credit issues and gathered supporting documents, it’s time to apply. Here are some of the things you may need to prepare for your application:

Financial Statements: If you’re applying for a large unsecured loan or equipment finance, prepare your financials, a 12-month cash flow forecast, YTD management accounts, aged payables and receivables, and tax portal printouts. Note that smaller unsecured loans and private lenders will not typically require these documents.

Amount and Purpose: Be very specific about how much you need and what you will use these funds for.

Credit Explanation: Briefly explain the circumstances behind your past credit challenges and the steps you’ve taken to overcome them.

Security Overview: Provide details of unencumbered assets you could use as security.

Company Background: Give lenders a quick primer on your business history, operations, team experience, milestones, and trajectory.

With a consistent focus on improving personal and business credit scores over 6-12 months, more financing options should start opening up again. If you’re patient and diligent, you can put past credit issues behind you in time.

Apply for a Bad Credit Business Loan with the Help of Loan Experts

Bad credit can make accessing financing harder, but it doesn’t have to be a permanent impediment to your business’ growth. With the help of loan experts like us at Dark Horse Financial, you can secure better rates from our trusted lending partners.

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Case Studies

Case Study: $1.1M Private Loan to a Commercial Construction Business

Prior to COVID, our client had a thriving commercial plumbing business. Like many in the industry, the pandemic hit hard, with reduced contracts and delayed payments leading to financial strain. However, as the market picked up again post-COVID, their numbers began improving steadily. Still, the burden of the pandemic remained in the form of costly, self-sourced loans that created a significant drain on their cash flow. On top of this, the business had accumulated $1M in tax debt. The client was faced with two potential solutions: consolidate their existing debts into a more manageable loan or consider restructuring the business entirely. With the future looking brighter for their business, consolidation became the preferred choice. Their turnover and cash flow were strong enough to support a $1.1M unsecured loan over five years. However, while loans of up to $250,000 can sometimes be obtained without the need for extensive documentation, larger loans – particularly unsecured ones – typically require financials. The company’s financials had taken a hit during the pandemic, and with losses on the books, the unsecured option was off the table. The Tailored Solution: Secured Loan with Capitalised Interest Recognising these challenges, we adopted a two-step approach to provide the client with the financial relief they needed. First, we secured a $1.1M first mortgage loan, backed by property as collateral. By securing the loan against property, we were able to access a more flexible and favourable lending option that allowed the business to maintain liquidity. One of the key features of this solution was the decision to capitalise the interest on the loan. This strategy meant that the interest accrued on the loan was added to the loan balance rather than requiring regular interest payments to be made. For the client, this provided two key benefits: Cash Flow Relief: By capitalising the interest, the client was able to redirect their available cash flow to more pressing business concerns, including paying down their $1M tax debt. This approach allowed them to stabilise their financial situation without the immediate strain of servicing both the tax debt and the loan simultaneously. Flexibility for the Future: The capitalised interest approach also created breathing space for the business to recover from its pandemic-related losses. By the time the interest needs to be repaid, the business is expected to be on even firmer financial ground, with stronger cash flow and better financials. This would enable them to refinance the loan or even explore unsecured lending options once their financial situation improves. Why This Loan Was the Right Fit In this case, the combination of a first mortgage loan with capitalised interest was crucial in allowing the business to address its immediate challenges while providing room for future growth. Here’s why this was the ideal solution: Secured Loan with Lower Interest Rates: By securing the loan against property, the business was able to access a loan with a lower interest rate than would have been possible with an unsecured loan. This ensured that the overall cost of borrowing was manageable, despite the larger loan amount. Avoiding ATO Enforcement: The capitalisation of interest gave the business the breathing space it needed to focus on paying off its tax debt. This is significant because it helped them avoid any potential enforcement action by the Australian Tax Office (ATO), which could have included garnishing accounts or placing liens on assets. By proactively managing the tax debt, the business was able to maintain control over its financial future. Improved Financial Outlook: The structure of the loan was designed to align with the company’s projected financial recovery. With turnover increasing and cash flow stabilising, the business is expected to be in a much stronger position within a year. At that point, they will be far enough removed from the loss-making pandemic years to consider refinancing the loan or transitioning to an unsecured option with more favourable terms. Key Benefits of This Approach Preserving Cash Flow: Capitalising interest allowed the business to preserve its cash flow for day-to-day operations and critical payments like tax obligations, which was vital to its continued operation and recovery. Future Flexibility: This strategy provided the client with a clear pathway to financial recovery. After one year, the business could refinance the loan under more favourable terms or secure unsecured financing once they’ve demonstrated improved financials. Tailored Solution for Unique Challenges: This loan was structured with the unique challenges of the business in mind. The post-COVID recovery created an opportunity for growth, but also highlighted the need for a financing solution that wouldn’t strain the business’s resources. A first mortgage, combined with capitalised interest, was the perfect balance between providing necessary capital while keeping short-term obligations low. Strategic Debt Management: By choosing consolidation over restructuring, the business retained full control over its operations while addressing its debt obligations. This solution also ensured that their tax debt was managed, reducing the risk of future penalties or enforcement action. In conclusion, this case study demonstrates how a strategically structured loan – even a secured one – can create substantial value for a business, especially when navigating a post-crisis recovery. At Dark Horse Financial, we understand the need for tailored financial solutions that don’t just solve problems but also enable businesses to thrive in the long term. Related posts: Case Study: An Unsecured Business Line of Credit Can you consolidate your business debts? (A Case Study) Increase Supply Chain Efficiency with Trade Finance Case Study: $75k Overdraft Limit + $40k Capital Raise Secured Against Equipment (No Property Security)

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Blog

Financing for Doctors: Medical Business Loans, Personal Loans, and more

Key Takeaways Doctors are considered low-risk borrowers by many lenders. Thus they have access to a wide range of financing options with competitive interest rates, flexible terms, and high loan amounts to support both business and personal financial needs. Some reasons why doctors need loans include purchasing commercial property, purchasing equipment, securing working capital, debt consolidation, further education, and more. Medical business loans are versatile loan products that can cover a range of business expenses, including staffing, marketing, and emergency expenses. Medical practice loans are ideal for doctors looking to acquire, expand, or renovate a medical practice. Medical equipment loans are for purchasing or leasing medical equipment, and helping doctors stay up-to-date with the latest technology without draining working capital. Doctors can access personal loans for managing personal expenses, debt consolidation, home improvements, or continuing education. As a medical professional, assess your needs and carefully compare lenders before committing to a loan. Doctors face unique financial needs, whether they are setting up their medical practice, expanding it, or purchasing new equipment. Fortunately, various tailored financing options are available to healthcare professionals. Understanding these loan types can help you secure the right kind of funding for your medical business or personal financial goals. Let’s explore the types of loans for doctors, including medical business loans, medical equipment loans, and more. Get a quote Why Doctors Need Financing Doctors often need financing for a variety of reasons, both for professional and personal needs. Some of the most common reasons include: Starting a New Practice: Setting up a new medical practice involves significant upfront costs, including leasing office space, purchasing equipment, and hiring staff. Financing helps cover these initial expenses. Expanding or Renovating a Practice: As patient numbers grow, doctors may need additional space, more advanced technology, or enhanced facilities, which require substantial capital. Purchasing Medical Equipment: Medical equipment, such as diagnostic machines, surgical tools, or patient management software, can be expensive. Equipment loans allow doctors to finance these purchases without depleting their cash reserves. Practice Acquisition: Many doctors buy existing practices or partner with other healthcare providers, which often requires financing for the acquisition costs. Working Capital Needs: Running a medical practice involves ongoing expenses like payroll, utilities, and supplies. Financing helps ensure smooth cash flow, especially during periods of irregular income. Debt Consolidation: Personal or business debts can be consolidated through loans with lower interest rates, helping doctors manage their finances more effectively. Continuing Education or Certifications: Doctors often need to pursue ongoing education to stay current in their field. Financing helps cover the cost of courses, certifications, or attending professional conferences. Types of Loans for Doctors Doctors in Australia can access a number of loans to address their needs, whether for their practice or for personal purposes. Here are the most common ones: 1. Medical Business Loans Medical professionals can explore general business loans for any needs concerning their medical business. These loans can cover common costs like working capital, inventory purchases, marketing, hiring, and more. Types of Business Loans for Doctors: Secured Business Loans: Doctors can opt for secured loan options for any business purpose. If you need long-term financing and have significant assets to use as security, you can go for a secured loan. This is best for more significant costs like business expansion. Unsecured Business Loans: If you need a quick source of funding with minimal requirements, you can go for unsecured business loans. These loans are more short-term and can be approved as fast as 24 hours. Business Line of Credit: A renewing line of credit can help doctors manage the daily operations of their business, including paying for payroll, utilities, emergencies, and more. A line of credit has a predetermined limit you can draw from at any time. When you repay, the limit resets. You only need to pay interest on the borrowed amount, not the full limit. 2. Medical Practice Loans If you’re focused on the specific needs of starting or expanding a medical practice, you can go for specific loans that address those needs. Medical practice loans help doctors acquire or upgrade their practice with minimal hassle. Why Opt for a Medical Practice Loan? Whether you’re buying into an existing practice or establishing your own, the upfront costs can be significant. Medical practice loans are tailored to help doctors cover costs like: Purchasing Property: If you’re starting from scratch, the cost of a commercial or office space can be your biggest expense. The right loan can cover this cost. Acquiring an Existing Practice: If you’re buying an existing practice, it requires significant capital to do so. Medical practice loans can cover the purchase price. Renovations and upgrades: If your practice needs modernisation or expansion, these loans provide the necessary funding. Common Types of Loans for Acquiring and Upgrading a Medical Practice Commercial Property Loans: Medical professionals can access commercial property loans for the specific purpose of buying commercial space for their practice. These loans can cover the purchase or building of a commercial space. Fitout Finance: These are loans tailored specifically for the improvement of a space’s interiors, including electrical, plumbing, lighting, structural, and interior design. 3. 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