Seeking finance for a business with a bad credit rating

I have a bad credit rating because one of my customers went under and put us in debt. Is there anything we can do to get a bank loan?

Having a poor credit rating can certainly hinder business loan applications, especially through the traditional route of a bank. However, there are various finance solutions for businesses in your predicament and you will also find that some banks are more flexible than offers. Above all, remember many successful entrepreneurs and business leaders have started from the same point as you, so stay positive.

Step one before you apply for a loan, make sure you have all your finance paperwork in order – know every detail of your credit history and business revenue details (cashflow, profitability, debt obligations and so on) so that when the lending institution you are negotiating with makes their initial credit check you can pre-empt automatic disqualification and be in position to argue your case.

Related: Getting small business loans with bad credit

Also, explore of if there is the possibility of filing ‘notices of correction’ with the major credit agencies where you can explain why there are negative ratings and if applicable enter details of how any issues were resolved.

Bank Accounts for the Credit Impaired

Some banks offer basic bank accounts for credit-impaired people. The following banks say that they have products which will help businesses, but ultimately it will come down to individual cases whether the banks think you are a good risk or not:

  • NatWest and RBS have a product available to entrepreneurs who have previously been unable to open a business account. It is called a Foundation Account and offers a cheque book, cash machine and Solo debit card, standing orders and direct debits.
  • Santander offer an Instant Plus current account with a Visa debit card but no cheque book
  • Halifax offers a cheque book and cash card

If approaches to these are not successful, you may be able to get an account through a broker.

Specialist Lenders

In recent years, a number of specialist loan providers have appeared which cater for businesses with bad credit. Do be aware that such lenders usually offer ‘challenging’ terms compared to traditional sources. You must satisfy yourself that any product you consider is right for you. Research them thoroughly and negotiate carefully.

Alternative Sources of Finance

When seeking sources of finance as a credit-impaired individual or entity there are still funding avenues to explore and grants available – but usually for very specific purposes. The problem is finding whether your business qualifies for any of these grants. Many businesses start out seeking a grant but end up opting for a loan.

In the event that a normal loan from a bank is not an option there are a number of alternative sources of finance and or grants that might be possible:

  • Friends and/or family – a friend or family member particularly one with experience of running a business might be prepared to lend you the money. But you need to draw up a written agreement specifying when the loan will be repaid and any interest payable.
  • Many early stage business people use their credit card to fund expenses – items such as travel, stationery, petrol can be purchased on credit cards which, provided the debt is controlled, is a good way to fund the early stages of a business, although interest charges can be relatively high.
  • Another alternative is to join a Credit Union. The Association of British Credit Unions (ABCUL) website provides information regarding their members and their services. Some of the larger Credit Unions offer current account facilities. If you live in an area served by one of these credit unions, you might be able to avail yourself of their facilities. If you are able to save with a credit union (usually for a period of at least three months) you might then be able to access their lending facilities.
  • If you are between 18 and 30 and unemployed, the Prince’s Trust also offers loans of the last resort to people wanting to set up a business. They also offer help for people over 50 years old. An organisation called Prime also helps this age group wanting to start a business. The Prince’s Trust provides loans of up to £4,000 for a sole trader as well as grants up to £1,500.

Finally, there is advice on raising business finance through the website. As well as offering advice on raising finance the site offers help with starting a business and start-up businesses grants.

NB: This is NOT individual financial advice under the Financial Services and Markets Act 2000.

Related Topics

Credit score
SME finance

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