How to Find Commercial Loans When You Have Bad Credit

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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:

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.

Commercial Lending Solutions For Your Business

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Private Lending

How to Find a Good Private Lender in Australia

Key Takeaways Private lending refers to financing from non-traditional sources, like individuals, private companies, or contributory funds with an investor base. Private lenders provide quick access to funds without having stringent criteria for approval. They also offer more flexibility when it comes to loan terms. To find the right private lender for your business, do research and check the track record of several lenders. Look for introductions from businesses that have previously borrowed from lenders before so you can validate your selected lender has a track record of settling the amount of funds you’re seeking against the security you have on offer. You can also seek help from lending experts to help you find the right lender that can address your financial needs. With the flexibility, speed, and variety of services offered by private lenders, many businesses are turning to them for financing. There are plenty of private lenders in Sydney, Melbourne, and all over Australia. How do you find the right one to help your business? Let’s discover how to find a good private lender by going over the factors and necessary steps, ensuring your business secures the best possible deal. Get a Quote What Is Private Lending? Private lending in Australia refers to financial services provided by non-institutional lenders. Unlike banks or credit unions, these private lenders may be individuals or companies offering loans using their own capital. This option is particularly appealing for businesses that can’t secure traditional financing due to factors like credit issues or lack of documentation or trading history. Private lending is also a great alternative for borrowers who have already been rejected by banks. Private lenders are known for their flexibility, often offering loans tailored to the borrower’s specific needs, including both secured and unsecured options. However, the terms of these loans can vary widely, which is why it is important to select the right private lender. Why Choose a Private Lender? Here are some of the key advantages of borrowing from a private lender: Fast Funding: Private lenders often have a less comprehensive approach to assessment than traditional lenders, allowing for faster loan approvals and fund disbursement. Flexible Loan Terms: Private lenders can customise loan agreements to meet the unique needs of your business, including varying loan amounts, interest rates, and repayment schedules. More Lenient Approval Criteria: Many private lenders are willing to work with businesses that might struggle to get approved by banks, such as those with less-than-ideal credit histories or those with unique business models. Diverse Loan Products: From short-term loans to asset-based finance, private lenders offer a wide array of products tailored to specific business requirements. How to Find a Good Private Lender: Key Factors to Consider Choosing the right private lender requires careful consideration of several factors: Reputation and Trustworthiness The first step in how to find a good private lender is to evaluate the lender’s reputation. Since private lending falls into an unregulated form of lending, it is vital to work with a reputable lender. Look for reviews and testimonials from other businesses that have worked with the lender, and research their background. Ideally you should be seeking first hand knowledge of a lender who has a track record of settling the amount of funds you require, against the security type you can offer. Loan Terms and Conditions One of the most critical aspects of selecting a private lender is reviewing the loan terms. Pay close attention to the interest rate, repayment terms, and any additional fees. Private loan interest rates can vary significantly, so it’s crucial to ensure that the terms fit within your business’s budget and growth projections. Be cautious of any hidden fees. While private loan interest rates are generally higher than traditional loans, the speed and flexibility they offer can justify the cost. Make sure to negotiate the terms to get a deal that suits your financial situation. Transparency Transparency is a hallmark of a good private lender. They should be clear about their interest rates, fees, and any terms that could impact your loan. If a lender’s fees aren’t clear or they tell you not to worry about some of their terms this could be a red flag. Transparent lenders will provide you with clear loan documents and answer any questions you have upfront. Loan Offerings When looking for a private lender, it’s important to check their loan products and see if they can give you solutions that fit your needs. It’s also crucial to discern predatory practices like offerings that are too good to be true or the taking of “application fees” with no intention to the settle the loan. Make sure to select a lender that offers realistic products that align with your objectives. Communication and Customer Support A lender who is accessible, responsive, and willing to discuss your needs is more likely to provide a positive borrowing experience. Make sure the lender you choose offers strong customer support, as you will likely need guidance throughout the loan process. Steps to Finding the Right Private Lender Now that you know what to look for in a private lender, here’s how to find a good private lender for your business: 1. Conduct Online Research Start by searching online for private lending in Australia. Many private lenders have websites outlining their loan products, qualifications, and terms. Review these sites carefully and shortlist lenders that meet your needs. 2. Read Reviews and Testimonials Online reviews can give you insight into a lender’s reputation. Look for reviews from other business owners who have used their services. You can also check financial forums or ask other business owners for recommendations. 3. Compare Loan Offers Once you have a list of potential lenders, compare their loan offers. Look at the interest rates, loan terms, and any additional fees. Use this comparison to narrow down your options to lenders offering the best deal for your business. 4. Seek Professional Help It can be difficult to select the right private lender, especially if you’re new

14 October 2024

A man in a blue suit and red tie and wearing glasses cheerfully reads what’s on his electronic tablet, walking outside building with glass windows, concept photo for getting an unsecured business overdraft approved

Unsecured Overdraft

Unsecured Business Overdraft: A Complete Guide

Key Takeaways An unsecured overdraft is a revolving line of credit ideal for funding short-term business needs. It works by connecting an overdraft facility to your business bank account and allowing you to overdraw up to a certain limit. Once you repay what you borrowed, the limit will reset. You only need to pay interest on what you borrowed, not the whole limit. An unsecured overdraft does not need any business assets to secure the line of credit, making it an accessible option to Australian businesses. Unsecured overdrafts have higher rates than secured overdrafts, but the exact interest you will pay depends on factors like your financial profile and the lender’s policy. To properly manage your overdraft, monitor your usage regularly and make payments frequently to minimise interest costs. When you run a business, cash flow can fluctuate throughout the year. Having quick access to funds during low periods is key to staying afloat. This is where a business overdraft comes in. An overdraft, particularly an unsecured one, can be a lifesaver during off-peak seasons and when unexpected situations arise. Let’s explore unsecured overdrafts, how they work, and how they could be the right option for your business. Get a quote What is an Unsecured Business Overdraft? An unsecured business overdraft is a line of credit solution that allows businesses to draw more money than they currently have in their bank accounts. This type of financing does not require a mortgage to secure the facility. How Does an Unsecured Business Overdraft Work? With an unsecured business overdraft, your business bank account is linked to a line of credit, allowing you to draw on the line of credit up to a pre-set limit. You can access this credit whenever you need it, and you only pay interest on the funds you use. As a revolving line of credit, once the overdraft is repaid, you can draw on it again up to your limit. For example, if your business has an overdraft limit of $500,000 and you need $200,000 to cover expenses, you can access those funds immediately. You only pay interest on the $200,000 you’ve used, not the entire overdraft limit. What Can You Use an Unsecured Overdraft For? An unsecured business overdraft can be a valuable tool for supporting your operational expenses and cash flow. Here are some situations where an unsecured overdraft can be beneficial: Working Capital Needs: Cover day-to-day operational expenses when cash flow is temporarily tight. This includes utilities, payroll, supplier payments, and more. Seasonal Fluctuations: Many businesses experience slow periods during certain seasons. An overdraft can help bridge the gap until revenue picks up again. Emergency Expenses: Unexpected costs such as equipment repairs or urgent stock purchases can be covered quickly with an overdraft. Short-term Opportunities: If a business opportunity arises that requires immediate funding, an unsecured overdraft can provide the necessary cash flow. An unsecured overdraft may not be the right choice for other financing needs or major capital investments. In these cases, you may want to consider a traditional business loan or other financing options. Unsecured Business Overdraft vs. Secured Business Overdraft What is the difference between an unsecured and secured business overdraft? The main difference is the use of assets as security for the line of credit. Secured overdrafts typically require a mortgage over property security. Since this lessens the risk for lenders, secured overdrafts can have lower interest rates than their unsecured counterparts. Meanwhile, unsecured overdrafts are a quicker alternative that’s ideal for businesses that have no assets or don’t want to tie up assets in financing. Unsecured overdrafts from banks can, on occasion, have as low rates as a secured overdraft. Here’s a quick comparison: Feature Unsecured Business Overdraft Secured Business Overdraft Security Required None Yes Approval Process 1-2 day approval, as no valuation of assets is required Assessment, valuations, and approval process takes longer (approx. 4 weeks) Interest Rates Usually higher (but not always) Generally lower, as the loan is backed by property and more likely to be from a bank Credit Limits Dependent on serviceability, about the same as secured overdrafts Dependent on serviceability, about the same as unsecured overdrafts Unsecured Business Overdraft Rates: What to Expect Unsecured business overdraft rates from non-bank lenders are typically higher than secured overdraft rates offered by banks. These rates can vary depending on factors such as the lender, your business’s financial performance, and your credit history. Some lenders charge a facility fee or line fee for maintaining the overdraft facility whereas others do not. Fees can make a big difference to the real cost of your overdraft. It’s crucial to compare rates from different lenders to find the best deal for your business. Always consider both the interest rate and the fees to get a full picture of the cost of borrowing. How to Apply for an Unsecured Overdraft Facility The unsecured business overdraft application process in Australia is generally straightforward. Here’s what you need to do: 1. Assess Your Situation: Start by looking closely at your business finances and determining how much you need. It’s also important to pinpoint what credit limit you can realistically maintain without overborrowing. Knowing these before applying can help you keep your business finances in check even during financial difficulties. 2. Compare Lenders: Review and compare several lenders before settling on one. Understand the different lenders’ policies, especially what fees they charge on top of interest. This allows you to get the most savings and find a lender that aligns with your needs. 3. Prepare Requirements: Lenders have different requirements. Some may require documentation, and some may not. Before applying, check what your chosen lender requires and prepare everything beforehand. This allows for a smoother and quicker application process. 4. Submit Your Application: Submit your application directly to the lender or through the help of a finance broker who is an expert with overdrafts. Once your application is submitted, be aware of any updates or questions – some lenders can get you approved within the same day. 5. Use Your

14 October 2024

How to Find Commercial Loans When You Have Bad Credit

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Understand your credit score