Key Takeaways
- Bad credit does not automatically prevent you from qualifying for an asset based loan. Many lenders place significant weight on the value and quality of your security.
- Asset based lending places greater emphasis on the value and quality of the security than unsecured lending, although lenders still assess to make sure borrowers have a credible exit strategy to repay the loan.
- Different credit issues carry different levels of risk. A missed payment several years ago is viewed differently from recent defaults or unpaid tax debt.
- Strengthening your application with clear financial information, a realistic repayment strategy, and quality assets can improve your borrowing options.
- Property is generally the strongest form of security, although equipment, vehicles, and other assets may also be acceptable depending on the lender.
- Specialist lenders often provide more flexibility than traditional banks for borrowers with impaired credit, particularly where there is strong security and a clear exit strategy.
Bad Credit Doesn't Necessarily Disqualify You
Many business owners assume that once they have defaults, missed repayments, or a poor credit score, borrowing money becomes impossible. That is not always the case.
If you own valuable assets, your borrowing options may be much broader than you expect. This is especially true when looking at an asset based loan bad credit solution.
Unlike unsecured lending, where your credit profile carries significant weight, asset based lending allows the lender to consider another important factor: the value of the security you can provide.
Rather than making a decision based almost entirely on your credit file, lenders assess the overall level of risk. They consider questions such as:
- What asset is being offered as security?
- How much equity is available?
- How easy would the asset be to sell if required?
- Can the borrower realistically service the loan?
- Does the loan have a clear purpose?
- Is there a realistic exit strategy?
A poor credit history may still influence the decision, but it is only one part of the assessment.
How Asset Security Changes the Lending Equation
An asset based loan is secured against tangible assets owned by you or your business. The type of asset you own can influence both the lenders available and the terms you’re offered.
Many specialist lenders provide asset-based lending against:
- Residential property
- Commercial property
- Industrial property
- Trucks and prime movers
- Trailers
- Excavators and earthmoving equipment
- Forklifts
- Manufacturing machinery
- Agricultural equipment
- Commercial vehicles and utes
- Plant and equipment
- Accounts receivable (invoice finance)
- Existing business equipment through asset refinance
Some lenders specialise in certain asset classes. For example, a lender that regularly finances transport businesses may have a stronger appetite for trucks and trailers than a traditional bank, while another may focus on construction equipment or commercial property.
What Lenders Focus on When Credit Is Poor
When assessing an application involving impaired credit, lenders usually look beyond the credit score itself.
The Quality of Your Security
Not all assets carry the same value from a lending perspective. Residential and commercial property generally provide a strong form of security, although many lenders also have a strong appetite for quality vehicles, machinery and equipment.
Equipment, vehicles and machinery can also work well, although lenders will consider factors such as:
- Age
- Condition
- Market demand
- Ease of resale
The type of finance also matters. Different asset-based lending products are assessed differently.
For example:
| Product | Primary Security |
|---|---|
| Equipment Finance | The equipment being purchased |
| Truck Finance | Truck or trailer |
| Machinery Finance | Plant or machinery |
| Asset Refinance | Existing business assets |
| Invoice Finance | Outstanding customer invoices |
| Second Mortgage | Property equity |
| Commercial Property Loan | Commercial real estate |
Even where borrowers have impaired credit, the strength of the security and the purpose of the loan often have a significant influence on lender appetite.
Available Equity
Equity is often more important than the asset’s total value. For example, a commercial property worth $2 million with a small existing mortgage presents a much stronger security position than a heavily mortgaged property of similar value. Greater available equity generally gives lenders more confidence.
Cash Flow
Strong security does not eliminate the need to demonstrate repayment capacity.
Lenders still want evidence that your business generates sufficient income to service the loan.
Depending on the size and type of facility, they may review:
- Business bank statements
- Financial statements
- Tax information
- Existing loan commitments
Exit Strategy
This becomes important for private loans, like a second mortgage. The lender wants to understand how the loan will ultimately be repaid.
Your exit strategy may include:
- Expected revenue
- Sale of an asset
- Property sale
- Refinancing
A realistic exit strategy can significantly improve lender confidence.
Types of Credit Issues and How Lenders View Them
Minor Late Payments
Occasional late payments from several years ago are usually considered lower risk, particularly if your recent repayment history has improved. Many lenders are willing to overlook isolated issues.Paid Defaults
Defaults that have already been paid are generally viewed more favourably than outstanding debts. They demonstrate that the issue has been resolved.Unpaid Defaults
Outstanding defaults raise more concern. Some private lenders still consider these applications, but usually with security requirements.Tax Debt
ATO debt is very common among Australian businesses. Some borrowers have ongoing payment plans with the ATO, while some have outstanding amounts and even defaults. Having tax debt does not necessarily prevent borrowing, especially if you’re borrowing to pay off tax debt. However, lender selection becomes more limited depending on how large your tax debt is or how large it is relative to your turnover.Court Judgments
Court judgments receive greater scrutiny because they indicate legal action by creditors. Approval often depends on:- The amount involved
- Whether the debt remains unpaid
- The quality of available security
- Your current financial position
Previous Insolvency
Previous bankruptcy, Small Business Restructuring (SBR), Voluntary Administration (VA) or liquidation all affect lending differently depending on the lender. Even so, some specialist lenders remain willing to consider applications where sufficient property equity or business assets substantially reduce lending risk.How Lenders Actually Assess Bad Credit
| Credit Issue | Typical Impact |
|---|---|
| ATO debt | Depends on payment plan status and size |
| Paid default | Sometimes acceptable |
| Missed payment | Usually minor |
| Bankruptcy | Significant |
| Recent liquidation | Serious |
| Court judgement | Serious |
How to Strengthen Your Application with Bad Credit
There are several ways to improve your chances.
Offer Strong Security
Higher quality security generally creates more lending opportunities. Residential and commercial property often provide the widest range of lender options. Rolling stock like trucks, trailers, and yellow goods also provide wide lender options since they are highly liquid assets, usually with a defined resale value.
Be Honest About Your Credit History
Trying to hide previous credit problems rarely helps. Lenders will identify most issues during their assessment. Providing context upfront allows them to understand what happened and whether those circumstances still exist.
Explain Recent Improvements
Many businesses have experienced financial pressure during difficult trading periods. If your business has recovered, explain:
- Increased revenue
- Improved profitability
- Better cash flow
- New contracts
- Reduced expenses
- How problems of the past have been mitigated against
Current performance can carry more weight than historic challenges with a receptive lender.
Types of Asset Based Finance Available for Borrowers with Bad Credit
The right asset based loan depends on the type of asset you own and how you intend to use the funds.
Property Asset Based Loans
Property asset based loans use residential, commercial or industrial real estate as security. They are commonly used to fund business expansion, purchase commercial property, refinance existing debt, or consolidate liabilities such as significant ATO debt.
The lender assesses the property’s market value and lends a percentage of that value. Because property is generally considered strong security, these loans often offer higher borrowing limits, longer repayment terms and more competitive interest rates than other forms of asset based lending.
For borrowers with impaired credit, substantial equity in a property can significantly strengthen an application.
Equipment Financing
Equipment financing allows businesses to raise capital against machinery, vehicles or other equipment they already own. It can also be used to purchase new or used equipment without paying the full purchase price upfront. Some types of equipment finance include:
- Chattel Mortgage
- Hire Purchase
- Finance Lease
- Sale & Leaseback
- Equipment Refinance
When raising capital, your existing equipment acts as security while you continue using it in your business. When purchasing equipment, the asset being acquired becomes the security for the loan. Ownership passes to your business at settlement, and once the loan is repaid in full, the equipment remains yours.
Invoice or Accounts Receivable Financing
Invoice finance, also known as accounts receivable financing, allows businesses to access funds tied up in unpaid customer invoices instead of waiting for payment terms to expire.
Most lenders advance between 70–90% of the invoice value. Businesses with long payment cycles often use invoice finance to improve cash flow without taking on long term debt.
Second Mortgages
A second mortgage allows you to borrow against the equity in a property that already has an existing mortgage. It provides access to additional capital without replacing your current home or commercial loan.
The second lender registers a second mortgage over the property, meaning the existing mortgage remains in first position. If the property is sold following a default, the first lender is repaid before the second lender.
Second mortgages are commonly used to fund business growth, purchase stock or equipment, consolidate debt, or provide working capital. They can also be suitable for business owners with bad credit where there is sufficient equity in the property to support the loan and a valid exit strategy to repay the second mortgage.
Which Asset Based Loan Is Right for Your Business?
Not every asset based loan works the same way. Businesses use different lending products depending on the assets they own and the purpose of the funding.
For example:
- Equipment finance is commonly used to purchase or refinance machinery, manufacturing equipment and business assets. It’s also used to unlock capital from the value of your existing assets.
- Truck finance helps transport operators purchase prime movers, trailers and commercial vehicles while spreading repayments over time.
- Asset refinance allows businesses to unlock equity from equipment they already own, improving cash flow without selling productive assets.
- Invoice finance releases cash tied up in unpaid invoices, making it particularly useful for businesses with long payment terms.
- Second mortgages allow business owners to access equity in residential or commercial property where traditional business lending may not be available.
Each solution has different lending criteria, different security requirements and different lenders that specialise in that area.
Industries That Commonly Use Asset Based Lending
Asset based lending is used across a wide range of Australian industries, particularly where businesses own valuable equipment or property.
Examples include:
- Civil construction companies financing excavators, graders and loaders.
- Transport businesses purchasing trucks, trailers and prime movers.
- Manufacturers refinancing CNC machines and production equipment.
- Agricultural businesses funding tractors, harvesters and irrigation equipment.
- Engineering firms purchasing specialist machinery.
- Warehousing and logistics businesses financing forklifts and material handling equipment.
- Trades businesses purchasing commercial utes, trailers and tools.
- Medical and allied health practices financing diagnostic and treatment equipment.
Because specialist lenders often focus on particular industries, working with a broker who understands which lenders are active in your sector can significantly improve your funding options.
Frequently Asked Questions
Yes. Most lenders still review your credit history, but it is usually only one part of the assessment. The value of your security, available equity, repayment capacity and business circumstances often carry significant weight. That said, there are some asset based private lenders who do not check applicant’s credit score. Instead these lenders assess applicants based on the security asset’s value and the borrower’s exit strategy.
With many lenders, yes. Valuable property or business assets can substantially reduce lender risk, making approval possible even when your credit history is less than perfect.
There are very few automatic deal breakers across every lender. However, recent bankruptcy, fraud, unresolved legal issues or serious unpaid debts can make approval extremely difficult. Many non bank and specialist lenders are more open to considering issues like defaults or missed payments from several years ago.
In general, bad credit loans usually carry higher rates. Rates depend on several factors, including the type of security, available equity, loan purpose, repayment capacity and lender policy. Strong security can help reduce pricing compared with unsecured bad credit lending.
Traditional banks often have strict lending policies and minimum credit requirements that leave little room for exceptions. Specialist lenders usually take a broader view of your application, considering the value of your security, available equity, business performance, and exit strategy rather than relying heavily on your credit score.
The documents required vary between lenders and loan types, but providing complete and accurate information can speed up the assessment. Common documents include recent business bank statements, financial statements, tax information, an asset register, details of existing liabilities, and proof of ownership for the asset being used as security.
Approval times depend on the lender, the type of asset, and how quickly supporting documents are provided. Some equipment finance and private lending applications can be approved within 24 hours, while property backed asset based loans may take several business days due to valuation processes.
Yes. Many lenders allow businesses to refinance existing equipment to unlock equity or improve their loan terms. Refinancing can be used to access additional working capital, consolidate debt, lower repayments, or replace an existing finance facility with one that better suits your current business needs. The amount available depends on the equipment’s market value, age, condition, and any outstanding finance secured against it.
Final Thoughts
Bad credit does not always mean the end of your financing options.
If you own valuable business assets or property, lenders may be willing to look beyond previous credit problems and assess the broader strength of your application. Security, equity, cash flow and a realistic repayment strategy often carry far more weight than many borrowers expect.
Every lender applies different credit policies, which means the right lender can make a significant difference to both approval chances and loan terms.
Disclaimer: Loans and their accompanying benefits are available only to those who qualify for them and have been approved. Though we put a lot of care into writing this article, the information presented within is general and doesn’t consider your unique situation. It is not meant to serve as a substitute for professional advice, and you should not rely on it solely for any major financial decisions. You should always consult with a professional when you’re dealing with finance, tax, and accounting matters.
Speak with Dark Horse Financial About Your Options
If you’ve been declined by a bank or you’re unsure whether your credit history will affect your application, we can help you explore lenders that take a broader view.
We regularly arrange asset based lending for construction companies, transport operators, manufacturers and trades across Australia.
Contact our team today to get started.
