When you apply for a business loan, all lenders will look at your credit report as part of the application process. Having a low credit score can make it harder to be accepted for a loan, but it’s not impossible.
What is a business credit score?
Your business credit score is a numerical assessment that shows lenders how likely your business is to meet its financial obligations. That includes things like repaying loans, paying suppliers on time, or managing debt.
When you apply for business finance, lenders will check your credit score to help them decide whether or not to approve your application. A low credit score could mean fewer lenders will be willing to lend to you, or offer you less favourable terms.
How is your credit score calculated?
Credit reference agencies calculate your credit score, and each uses its own scoring system. For example, Experian rates businesses on a scale from 0 to 100, where 0 represents very high risk and 100 represents very low risk.
Credit Passport, meanwhile, uses a letter-based system ranging from A++ to E, with A++ showing an excellent credit rating.
Your business’s score is determined by the information these agencies hold about your financial activity. This includes how reliably you’ve managed existing credit, your company’s filed accounts, and even the credit history of the directors.
What is a bad credit score for a business?
What is considered as a poor credit score depends on the credit agency. For example, here is how Experian’s break down their scores:
- High risk – 0 to 40: Some lenders may not consider your application if your credit score is below 40.
- Medium risk – 40 to 80: You may be asked to provide extra information as part of your application.
- Low risk – 80 to 100: Having score above 80 can help you access the best financial products and deals.
If your business has an Experian score below 40, it will generally be considered to have bad credit. Your score may be different with other agencies, but if you have a low score with one, you’re likely to have a similar score with the others.
What can give a business bad credit?
There are several reasons your business could develop a low credit score. The most common include:
- Missed or late repayments
- Maxed-out credit lines
- High levels of debt
- Any County Court Judgments (CCJs) or bankruptcy
- Late account submissions to Companies House
- Several credit applications in a short period of time
Keeping up with bills, filing accounts on time, and monitoring your credit report regularly are all key to maintaining a healthy credit profile.
What are business loans for bad credit?
Bad credit business loans are designed to help businesses access funding even with a poor credit history. They’re often offered by lenders who focus on your business’s current and future performance rather than just your credit record.
These loans can be used for a wide range of purposes, including managing cash flow, buying stock, paying suppliers, or investing in growth.
Because the lender is taking on more risk, business loans for bad credit typically come with higher interest rates or may require a personal guarantee or security.
What types of business loans can you get with bad credit?
Most types of finance should still be available to your business if you have bad credit, including:
- Secured business loans: This is funding backed by a UK property, reducing risk for the lender and increasing your chances of approval. Because the loan is secured, lenders are often more flexible with credit scores.
- Unsecured business loans: This is a lump sum you can borrow without security. These can be harder to get and more expensive with bad credit, but there are lenders willing to lend to businesses with lower scores.
- Merchant cash advances: This is a way to borrow based on your card transactions. Repayment is based on a fixed percentage of your daily or weekly card sales, which means there is less risk to the lender.
- Invoice finance: This allows you to release money tied up in unpaid invoices to maintain cash flow. The lender advances most of the invoice value upfront and you repay them once your the invoice is settled.
- Revolving line of credit: This gives you access to a credit limit that you can draw from, repay, and use again as needed. Interest is only charged on what you use, making it a flexible option for managing cash flow.
To choose the right business loan, consider what you want the funds for, how much you need to borrow, and how quickly you need the loan.
How to improve your business credit score
It is possible to improve your business credit score, and even small steps can make a difference. Here’s how to start:
- Pay bills and suppliers on time: Late or missed payments are one of the biggest negative factors.
- File accounts promptly: Keeping your records up to date shows stability and good management.
- Keep debt levels down: Avoid using all of your available credit, as high utilisation can lower your score.
- Separate personal and business finances: Use a dedicated business bank account to build a clear credit profile.
- Monitor your business credit report: Check for errors or old information with agencies like Experian or Creditsafe and correct them if needed.
- Limit credit applications: Too many applications in a short time can make lenders view your business as higher risk.
Taking these steps won’t boost your credit score overnight, but over time, they’ll help you qualify for better lending options.
What’s more important: personal or business credit score?
Your personal and business credit scores can impact your ability to get corporate finance, but which is most important depends on your business structure and the type of loan you’re applying for.
If you’re a sole trader or partnership, lenders often rely more on your personal credit score, as your finances and business are legally connected.
For limited companies, lenders will primarily look at your business credit score. However, they may still look at directors’ personal credit histories, particularly for small or new businesses without a strong financial track record.
Building and maintaining both can help you access better rates, higher borrowing limits, and more choice when applying for business finance in the future.
How to get a business loan with bad credit
The application process for a bad credit business loan is mostly the same for any other loan. However, you may need to provide extra information or be asked for a personal guarantee to secure approval.
Here are the steps to getting a business loan with bad credit:
- Prepare financial records: Gather at least three months of business bank statements, invoices, or sales reports.
- Check revenue eligibility: Many lenders set minimum turnover requirements, such as £10,000 in monthly card transactions.
- Choose the right product: Decide what type of credit is the right option for your business needs and financial situation.
- Compare costs: Fees and interest rates can be higher on bad credit loans, so make sure it is affordable and you can afford the repayments.
Before applying for a business loan, make sure you can manage the repayments. Taking on additional debt could damage your credit score further if you struggle to repay what you owe.
When you’re ready, you can start a business loan application with Aurora Capital. You can apply in minutes, and applying won’t have any impact on your credit score.
