Bad Credit Small Business Loans

If you have a bad credit rating, you may feel that you have little or no chance of getting a business loan, but this is not necessarily the case. People with a bad credit history have usually had money issues in the past and maybe have struggled to make regular repayments on previously held loans, mortgages and so on. However, this does not mean that no one will ever lend money to you again.

There are a number of companies that grant bad credit business loans and, as with other small loans mentioned earlier, these loans tend to fall into 2 types – secured and unsecured.

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A secured bad credit business loan is one where the borrower has some kind of collateral that they can offer the lender to guarantee the loan. Often this collateral is something like a house, car or piece of land. A secured loan like this will usually come at a lower interest rate and run for a longer term than a similar unsecured loan. This is because the loan lender is confident that they will get their money back one way or another – either by you repaying the small loan as agreed, or in them taking the collateral from you if you fail to meet the payment schedule.

Obviously the risk in taking out any kind of secured loan is that if you have trouble finding the money to make the repayments, you may end up losing something very dear to you, such as your car or even your family home.

When you take on an unsecured small business loan, you have nothing to lose in terms of collateral as, by definition, you actually have nothing that you can offer to anchor the loan. In reality, what this means is that any lender is taking a gamble on lending you any money as the only thing they have as assurance that you will pay that money back is your signature on a loan agreement. As a result, unsecured loans of any kind come at a far higher direct cost to the applicant. They are usually for a shorter term and run at high rates of interest as well as having rigid terms. Also, if you default on you repayments penalty clauses and increased costs are likely to kick in very quickly.

You should also bear in mind that if you fail to pay off this new loan successfully, you will face an even worse credit rating that you had before you filled in the loan application, so committing to one is something you should think about very carefully before you make a decision.

Before you sign on the dotted line, whatever type of financing you are considering, do your research. Use every source you can find to ensure that you make the right decision for and your business – talk to financial institutions, check loan comparison websites and talk to friends and family who have taken out loans. Only once you have assessed all the options open to you can you make an informed choice as which kind of small loan will suit you and your circumstance best.