How to Find Commercial Loans When You Have Bad Credit

With the current business environment, many business owners are finding themselves or their businesses with a less-than-perfect credit score. But there are ways to access finance and work towards building your credit score back up.

Whether your business is looking to manage cash flow, expand, purchase equipment, or needs capital for a different purpose, looking for funds when you’ve got bad credit might feel like a daunting task — but it’s certainly not impossible, and you’re not alone. There are many commercial finance options that may be suitable for business owners with bad credit. At darkhorsefinancial.com.au, we specialise in helping businesses access the commercial finance they need.

Understand your credit score

When you understand your credit score, you can make choices that give you the best chance of being approved for a loan (and the best chances of improving your credit score!). For example, if you submit an application for an unsecured commercial loan through the major banks when you have a poor credit history, there’s a big chance it will be declined. This will be recorded on your credit file and could decrease your score even further — making it harder again to find the right commercial loan.

There are certain commercial finance products and lenders that are much more flexible regarding credit and lending criteria. Knowing where to apply leads to much higher approval rates for people and businesses with lower credit scores and can be the difference between approval and rejection.

Everyone in Australia has the opportunity to get a copy of their credit report every three months for free. This report tells you what your credit rating (credit score) is.

You can access your free credit report from any of the three credit bureaus below:

• Experian
• illion
• Equifax

Understand the different types of commercial loans

There are many different types of commercial finance products in the market, and they can each be used for a variety of purposes. The right one for your business depends on your requirements and your financial situation.

Business loans

A business loan is a lump sum of money offered to your business to be used for commercial purposes. There are many variables, including the loan term (the agreed date by which the funds must be repaid in full), interest rates (including the interest rate itself and whether it’s fixed or variable), loan amount, and whether it’s a secured or unsecured loan.

Learn more about business loans.

Commercial property loans

Commercial property loans are used to purchase regular and specialised commercial properties — usually for either business or investment purposes. A commercial property loan is very similar to a home loan or residential property loans, except they are used to fund a commercial property purchase rather than residential property.

Learn more about commercial property loans.

Line of credit and overdraft facility

Business banking products such as an overdraft is a revolving line of credit that allows the business to draw down cash as needed up to the approved credit limit. There are secured and unsecured options (usually secured by property). 

Equipment finance

Equipment finance (or asset finance) is used to purchase business machinery, assets, and equipment. If you already own equipment that is no longer under finance, a sale and leaseback agreement can be used to refinance the asset as a way to raise capital.

Learn more about equipment finance.

Cash flow lending

Cash flow loans bring forward revenue recognition of expected future income, so you can access your future payments before the cash has actually arrived.

Learn more about cash flow lending.

Private lenders

Private lending can be an extremely fast and efficient way to raise capital when you have exhausted other financing options.

Learn more about private lending.

Each of these products and most commercial loans have low doc and bad credit options, so may be suitable for many business owners struggling to access finance.

Work on improving your credit score

It’s possible to access finance when you have a bad credit score, but having a good credit report helps to open up more options and favourable loan terms, so it’s worth looking at improving. Improving your credit score doesn’t happen overnight, but there are steps you can take today that will pay off in the future.

Pay down your debt

If you have outstanding or overdue debt repayments, it’s essential to start paying them off. This includes loans and credit cards, but also expenses like gas, electricity, phone and internet, as well as mortgage or rent payments.

Watch your credit utilisation ratio

With revolving credit products (such as credit cards, lines of credit and overdraft facilities) you will have a utilisation ratio which shows how much of your credit limit you have drawn down. Basically, if the credit limit is $10,000 and you’ve utilised $5,000, the utilisation rate is 50%. Having a high utilisation ratio can negatively impact your credit score. So it’s important to keep on top of your repayments.

Top tip: Beware of reducing your credit limit. It’s a misconception that reducing your credit limit will help to improve your credit score. While a lower credit limit can help boost your borrowing power, it can actually have a detrimental impact on your credit score because it increases your utilisation ratio.

Limit applications

Each time you apply for credit, the lender will record an enquiry on your credit report. Having too many enquiries on your file can reduce your credit score. The other risk is being rejected. Each time you are rejected, it is recorded on your credit file and serves as a red flag for other lenders.

Good to know: We have lenders that will avoid hitting your credit file until they have expressed an intention to approve finance. We utilise this often as a way of seeking finance without negatively impacting your credit score.

Negotiate terms and seek help

In this day and age, it’s not uncommon for businesses and consumers to struggle to keep up with their repayments. If you find yourself in this position, contact your credit provider to see what options are available. They may be able to offer a repayment holiday or offer different terms. It may also be worth seeking professional advice from your accountant or financial adviser.

If you’re consistently struggling to keep on top of your financial obligations, speak to a business lending specialist like us at darkhorsefinancial.com.au. We have many strategies and structures that can help business owners get the cash flow they need while keeping on top of their obligations.

Talk to a business lending specialist about your commercial loan needs

While taking steps to improve your credit score can certainly pay off in the future, it doesn’t help you if you need to access finance in the present. This is where using professional services can significantly pay off.

The commercial lending process can be tricky to tackle alone — especially for anyone with bad credit. Finding the right business lending specialist can make a huge difference in accessing finance that suits your needs, cash flow and credit score.

At darkhorsefinancial.com.au, we are here to help you succeed in business. Understanding your situation and recommending the right finance solutions is what we do best — we don’t stop until we’ve crafted an optimal solution.

Specialising in complex commercial lending, we have the knowledge, expertise and resources to find affordable finance for business owners with bad credit.