Bad credit business loans: options when your credit history is weak

Businesses that are trading steadily now can often qualify despite past credit problems, depending on the type and age of the credit issues and the current strength of your business. Lenders that consider adverse credit typically look at:

• Current trading: turnover, profitability and whether income is steady or growing.
• Bank statements: how the account is run, including returned payments and overdraft use.
• Affordability: whether repayments fit comfortably within cash flow.
• The credit issues themselves: what happened, how much, how long ago and whether it's been resolved.
• Security: assets, card takings or invoices that reduce the lender's risk.
• Personal credit: directors' personal credit files and existing personal debts.

To understand what lenders see about your business, read what goes into a company credit report.

Lenders price for risk, so bad credit finance usually costs more than mainstream lending, and you may be offered a lower amount or shorter term. Compare the total amount repayable, including fees, and make sure repayments are affordable. Borrowing and repaying on time can help rebuild your credit profile, which may let you refinance on better terms later.

With adverse credit, lenders lean more heavily on security and guarantees to offset the risk. A personal guarantee from the directors is close to universal, and some lenders want it supported by a charge over the guarantor's home, so take independent legal advice before signing. Limited companies may be asked for a debenture giving the lender a floating charge over the business's assets. Asset finance is secured on the item itself, invoice finance on the debtor book and a merchant cash advance on future card takings, which is why those products can work where an unsecured loan is declined. Offering property as security can widen the choice of lenders, but the property is at risk if repayments are missed. Our guide to personal guarantees explains what you would be signing.

A bad credit business loan typically takes from a few days to around three weeks, and adverse credit usually adds some time compared with a clean application. Underwriters read bank statements line by line, may ask for evidence that CCJs or defaults are settled, and often want a written explanation of what went wrong before they decide. Merchant cash advances and unsecured loans based on recent trading tend to be the quickest. Asset finance depends on the supplier and, for used equipment, on an inspection or valuation. Secured loans take longest, commonly several weeks, because of the property valuation and legal work. Having the explanation, settlement letters and statements ready at the start is the easiest way to avoid delay.

If new borrowing would be expensive or hard to get, several alternatives can ease cash flow without another loan. Where HMRC arrears are the pressure point, a Time to Pay arrangement may spread the bill; our comparison of Time to Pay and a tax loan sets out the trade-offs. Where several costly debts are the problem, debt consolidation may reduce monthly outgoings, provided the total cost is not higher. Tighter credit control can release cash already owed to you; see our guide to chasing late payments. And sometimes waiting six to twelve months, keeping accounts up to date and statements clean, opens up cheaper lenders than borrowing today.