If you own a smaller business, a bank will typically look at your personal credit score when deciding whether to approve a business loan. If your personal credit is overextended, or you don’t have a very high score your loan application will likely not be approved. And while a credit score of 600 may seem like a nice, round, impressive number - sadly it's unlikely to impress traditional lenders.
What the Numbers Mean
Your credit score is a three-digit number that essentially indicates the level of risk a lender accepts when they loan you money.
Overall, here’s how it works:
- 300-629: 300-629: Bad credit – you will get turned down for business loans by traditional lenders and will likely only be able to access secured credit cards/lines of credit. Note that your score is based, in part, on how much and what type of credit you currently have – it doesn’t always indicate that you didn’t pay your creditors. A low score may simply mean you don’t have an extensive credit history.
- 630-689: Fair credit – this is considered “average” credit. You may be able to get credit cards, but at high interest rates. You are unlikely to be approved for a traditional loan, unless you have a co-signer and significant collateral – and even then, you may not be approved.
- 690-719: Good credit – You will have a much easier time getting credit cards or lines of credit but may still not qualify for a small business loan from a traditional lender.
- 720 and up: Excellent credit – congratulations! 850 is an almost impossible to reach score, but anything from 720 up is outstanding.
How to Improve Your Credit Score
Contrary to what some people would like you to believe, there is no fast fix for a bad credit score. You need to devote time to repairing your credit issues.
If your score is low because you’ve had problems with credit before, you’ll need to pay back any outstanding debts. If you’ve already done that, and your score is still low, look into ways to start rebuilding your credit worthiness. Many people begin by getting a secured credit card. Ask your bank or credit union if they offer secured credit cards. Make sure they report to the three major credit agencies.
Typically, your limit on the card will be an amount of money from your savings account that the bank holds to ensure you will pay your balance. Use less than 30% of the card’s credit limit (or less, but make sure to use the card regularly for small purchases) and pay the balance in full and on time each month. You’ll see your score steadily improve, as long as you keep up with all of your other bills too.
How Can I Get A Small Business Loan with Bad Credit?
It’s unlikely that you will be approved for a small business bank loan with a credit score of 600 or less. Banks usually won’t loan to a small business owner unless he or she has at least a 720 score, and even then, it may be difficult to secure a traditional loan unless you have signifigant collateral, a solid business plan and excellent financial projections for your business.
The good news is that you do have options.
Alternatives to Traditional Small Business Loans
Alternative lenders happily work with businesses whose owners have credit scores in the 500 and up range. And alternative small business funding is typically flexible, with options – such as merchant cash advances – specifically designed to meet the needs of smaller businesses.
Alternative lending is an increasingly attractive option for many owners of small to mid-sized businesses. And a quick Google search will show you that there are plenty of companies who are offering funding to small businesses. But how do you find a trustworthy alternative funder?
You need an advocate who understands small business funding, like One Park Financial. Instead of trying to push you into accepting a particular funding offer, One Park Financial will find options from its network of 20+ funders that best fit your needs.
Your One Park Financial account manager will walk you through the process, answer all your questions, and work hard to get you the funding you need to succeed. Visit oneparkfinancial.com or call 855.218.8819 for more information.