There are many reasons why someone might find themselves with a less-than-perfect credit score.
Having a poor credit rating will affect your chances of securing funding, particularly from traditional lenders, as you will be viewed as high-risk. It may also affect the amount you can borrow and the interest rate you are offered. Generally, the higher your score, the better your chance of obtaining funding.
What is a low credit score and how do you get one?
It all boils down to your financial history. Regular missed or late payments, or owing very high levels of debt, often contribute to low credit scores. Even just one missed payment could negatively affect your credit score.
As a lender, we often see historical issues contributing significantly to low credit ratings. Negative historical issues, such as historical CCJs, affect credit scores for many years after the event. Younger people may also experience low credit scores, simply due to the fact they have a limited borrowing history.
A poor or very poor credit score is typically classed as bad credit. Each credit scoring agency has differing parameters. For example, Equifax classes scores under 580 as poor. With Experian, anything under 780 is considered poor. However, it’s worth noting that your credit score does not necessarily reflect who you are as a person.
Can I get a business loan with poor credit?
Here’s the good news – yes you can get a business loan with poor credit. However, your options might be limited, and you might be offered interest rates that are much higher than you expected.
Be aware that different lenders have different criteria, so even if you’ve been declined a loan from one provider, don’t be disheartened. All lenders will be looking to lend responsibly. This means that they will need to be certain that you can afford to repay your debt. Lending decisions are largely based on trust, so it’s important that you provide an honest account of any experiences you have encountered that have affected your credit.
It may seem tempting to conceal negative financial indicators to a lender, but this is counterintuitive. We recommend being honest about any irregularities in your financials or any challenges the business has faced, or any financial irregularities you have faced personally.
If you’ve experienced issues that might affect your credit score, be upfront about it with the lender.
Where can I apply for funding if I have been declined by the bank?
Community Development Finance Institutions (CDFIs), like SWIG Finance, stand ready to support businesses that can’t access mainstream funding. It’s worth noting that CDFIs are responsible lenders and therefore your application will be scrutinised to ensure that any lending is done so responsibly.
At SWIG, we don’t use automated credit scoring methods. Instead, our business managers work with you to understand you and your business so that they can base their decisions on potential. Other non-bank lenders might consider your application as well.
What security would I need to provide for a business loan?
SWIG Finance’s business loans are unsecured, which means that you won’t need to provide tangible security. However, we will require Personal Guarantees, so that in the instance that the business cannot repay the loan, the Borrower will become personally liable.
We will also take a debenture which is designed to give lenders some rights over the business assets and also the ability to step in and run the company if necessary. Debentures given to SWIG Finance will rank behind existing charge holders.
How can I improve my credit score?
Knowing your current credit score is the first step in improving it. Get to know your credit report to understand what is influencing your score and why.
Credit report companies like Experian and Equifax offer tips to help you proactively improve your score. These include checking for mistakes and errors, ensuring that your bills are paid on time, and maintaining a low credit card balance.
For more information about loans go to our Business Loans page.