Best Business Loans for Fair Credit

What is considered Fair Credit?

Personal credit scores are different from business credit scores. Personal credit scores, which are usually FICO scores, range from 300-850. If your credit score is below 580, it’s considered poor. A FICO score between 580-669 is a fair credit score. Business credit scores range from 0-100. Credit scores are rated based on their perceived risk. For example, a business with a credit score between 50-79 is considered a medium to high-risk borrower. If the company has a credit score below 50, they’re considered a high-risk borrower, while a business credit score of 80 and above are regarded as low risk.

What can a business loan be used for?

In most cases, lenders want to see that a small business will be using the loan to improve its financial position. There are many ways a company can use a loan to do that. Here are some examples:

• Purchase inventory to have supplies on hand like seasonal merchandise or things needed for day-to-day operations
• Replace, maintain or buy new equipment such as a vehicle
• Buy a franchise
• Expand operations, for example, opening a new location
• Remodeling a space, like putting in a kitchen for a restaurant
• Using the loan to manage operations like paying payroll which is helpful for businesses whose income is variable or seasonal

You can review your business plan with your lender. They might have some great advice on how you can best use the funds to maximize your profitability.

Types of Fair Credit Business Loans

There are several types of business loans for fair credit. The type of loan you’ll want depends on the nature of your business and how you want to make payments. Some examples are:

• Merchant Cash Advances that are used by businesses with fair or bad credit and large volumes of credit card sales, like restaurants. The lender will advance a certain amount to the borrower based on the projected future amount of the business’s credit card sales. Each day, they take a certain percentage of the daily sales as payment towards the loan. Days that have a high volume of sales will have higher payments than days with a low sales volume. Something to be aware of is that rates on these loans can be really high.
• Short-Term Small Business Loans are usually advanced in a lump sum and must be repaid within 6-24 months. Payments aren’t fixed like they are with consumer loans. Payments can be taken monthly, weekly or daily from the borrower’s business account.
• Collateralized Loans are loans that have been secured with an asset like business equipment or vehicles. It’s best to use business assets to secure a loan instead of personal assets. If the borrower can’t repay the loan, the lender takes the asset. If the assets are personal, like the borrower’s home, the borrower can put their finances in jeopardy as well as their business finances.
• Invoice financing is a type of loan where the lender will advance a loan amount to you based on the outstanding value of your invoices. It’s the borrower’s responsibility to collect the amounts due to them and then repay the lender.
• Equipment financing is borrowing to finance equipment. You can use a lender to do this, or you can sometimes borrow directly from the company providing the equipment.
• Invoice factoring is another type of loan based on outstanding invoices. When borrowers factor invoices for a loan, they essentially sell their invoices to a factoring company. The factor pays the business a percentage of the outstanding invoices. The amount is usually 80-85%. For example, if a business has $50,000 in unpaid invoices, they could potentially use those invoices to borrow $40,000-$42,500. The factor will collect the invoices and pay the business the value minus the factor’s fees.

As you can see, there are many different types of business loans that you can look into if you need to borrow for your business.

Do you need good credit for a small business loan?

Having good credit makes qualifying for a loan easier and gives you access to better rates and terms. It’s not impossible, though, to get a small business loan if you don’t have the best credit. Some lenders do provide business loans for people with fair credit. If your business has not been open long enough to have a credit score or the credit score is poor, the lender may use your personal credit score. In most cases, lenders want a minimum personal credit score of 600 to consider a business loan for fair credit.

What minimum credit score is needed to qualify for a business loan?

Different lenders have different minimum credit score requirements. Banks and credit unions usually have a higher minimum than SBA lenders or online lenders. Banks and credit unions typically want at least a 650 credit score but prefer to see a FICO score of 700. SBA lenders will consider borrowers with personal credit scores as low as 620, while some online lenders don’t have a minimum credit score requirement. 

Can I get a business loan with a 560 credit score?

Some lenders will consider a borrower with a 560 credit score. It’s essential to do your research to see what the lender needs to qualify you for a business loan and what rate you’ll be charged.

Is it hard to get a Business Loan with Fair Credit?

It can be hard to get a business loan regardless of your credit score. Sometimes it can take weeks or months. Business loans for people with fair credit can be harder to qualify for and more expensive. If you have the opportunity to rebuild your credit before taking a business loan, you should. 

Where can I get a business loan with fair credit?

The first step when applying for credit is to check your credit score. Request a copy of your credit report and make sure there are no errors or omissions that might be dragging your score down. If there are, contact the credit reporting agencies to correct them so that your score will be more accurate.

Once you know your credit score, you can research various lenders to see who gives the best business loans for fair credit. You will want to know what they need to qualify you and what your rate, terms, and conditions will be.  At PrimeRates you can compare lenders that offer business loans for a variety of credit scores. 

How much do business loans cost?

The cost of a business loan depends on several factors. Some things that will affect the cost of your business loan are:

• Your lender-banks usually have lower rates than online lenders.
• The interest rate-business loan interest rates can range from 2.58%-99% or more depending on who the lender is.
• The type of loan-different types of loans have different rates.
• Whether the rate is fixed or variable-it’s harder to determine loan costs when the loan rate isn’t fixed.
• Fees and costs-some loans have no fees, but others can have underwriting fees, origination fees, and closing costs.
• Providing a co-signer or collateral can reduce your rate, which will reduce your costs.

The cost of borrowing is an important factor when you are considering taking out a loan. You’ll want to make sure the loan is affordable, and it will generate enough revenue to offset the costs. The best way to find out this information is to discuss terms, rates, conditions, and fees with your lender before proceeding.

How to Get a Business Loan with Fair Credit

Getting a business loan with fair credit can be a bit challenging, but it’s not impossible. Consider following these steps to make the process easier for you and your lender:

1. Check your credit score and credit report. Make sure any wrong information is corrected.
2. Research lenders who extend business loans to borrowers with credit ratings similar to yours. Have a look at the rates they charge, the types of loans they offer, and the documentation they need to consider your request.
3. Be prepared to explain why you need the money and how it will help improve your business’s financial position. A well thought out business plan will help with this.
4. If possible, offer collateral to secure the loan or a co-signer.
5. Apply and check offers. Remember, there are lots of options for business loans on the market. It may take time to find the right lender for you but doing your research will help.

Apply for a Business Loan

If you have fair credit, you may have to search harder to find a business loan that makes sense. While it may cost you more, you will want to consider the possible return. You may also want to consider rebuilding your credit before applying for a loan. At PrimeRates you can browse lenders that offer business loans for most credit types. If you find an offer you want to explore, you can apply directly with the lender to get pre-qualified. Comparing offers in one place can save you time, hassle, and money, thus allowing you to invest more in the growth of your business. 

Discover business loans for fair credit. . . check offers at PrimeRates!