It is an often quoted statistic that only 1 in 5 of start-ups make it to the 5-year point, and it is understandable that experienced business people end up looking to raise money with a poor credit history. So the question becomes, how then can a business go about getting a loan if they are faced with this situation?
Alternatives to high street lenders
It is important to remember that even if you have been turned down for finance by your high street bank that there are other options available and there is no need to give up.
If you are working in a specialist industry, then probably the first thing to do is to look for a lender that is also a specialist. A good example would be for builders and developers. There are specialist finance houses that specifically look to lend on development property, and in fact, they base their lending more on the security offered at each stage of the project and on the exit strategy rather than the credit history of the borrower.
Leveraging security to get a loan
Security for the business loans and asset-based loans (a type of asset financing) is essential and the lender will look to take a charge on any assets owned by the business or a personal guarantee from the directors. Consider where you may be able to provide this security upfront
Alongside this, it is important to make sure that you can tell a compelling story. Get your business plan up to date and make sure it is slick and professional. Business lenders expect serious businesses to have put a great deal of thought into their business and having that collated into a sensible document is vital.
Although lenders look at whether you have the will to pay them back through credit scores and levels of security they will also be looking at whether you can pay them back by checking out the financials on the project.
Properly presented cash-flow
We’d always suggest making sure that you have engaged an accountant to produce a profit and loss and cash flow analysis showing the case both with and without financing. This will give the potential lender some comfort that the cash will be available to make payments when they are due.
Expert finance advice and support
Probably the most critical thing for finding a business loan if you have poor credit is to engage with a specialist independent lender and broker, someone who can offer independent advice and has a range of products and sources that mean you have the most extensive choice available to you.
A specialist lender is more likely to be able to produce a product that will suit your circumstances and at the same time will consider all aspects of the opportunity rather than just the dreaded credit score.
Having a bad credit score does not mean that business lending is a closed book and doing a bit of research will likely turn out to be time well spent as you will find that specialist business lenders are always out there.
Related: Sources of business finance