Written by Like any other type of business finance, bad credit loans give owners and operators access to the funds they need. However, unlike standard loans, lenders offering this type of finance can work with businesses even when their credit score or history isn’t the best. If you've found yourself in this boat, it's important to know that you aren't out of options. Apply with Savvy today and, if approved, access the funds your business needs before you know it!
Why compare business loans with Savvy?
You can speak with one of our specialist commercial brokers who can walk you through a range of loans to best suit your companies needs.
You can compare business loan offers, through a range of trusted lenders, maximising your chances of a great rate.
You can fill out our simple online form to generate a free business finance quote within minutes. You can also come back to it at any time.
How are bad credit loans different from regular loans?
There are some key differences between bad credit business loans and regular business loans, including:
- Higher interest rates and fees: because of the increased risk associated with bad credit, you’ll have to pay more to borrow.
- Lower borrowing limits: you won’t be able to borrow as much as businesses with good credit, as lenders will see bad credit as riskier.
- Shorter loan terms: while some business loans allow you to repay your loan over ten to 30 years, you generally won’t be able to take more than three here at most.
- Fewer options: banks and big non-bank lenders often won’t lend to businesses with bad credit, so we’ll help connect you with a specialist lender.
How much can I borrow if my business has bad credit?
As mentioned, the amount you’re able to borrow will be lower on a bad credit loan than a regular loan in most cases. There’s no specific maximum limit imposed by lenders, as it’s always assessed on a case-by-case basis.
Many lenders operate based on a ratio to your business’ income. Depending on the type of business you have and your monthly income, lenders may approve loans worth as much as 2:1 (particularly for established businesses or those with low overheads), but 1:1 or 0.5:1 is more common. For example, if your business was bringing in $35,000 per month, you may be able to borrow up to $35,000.
However, several factors can impact your borrowing power, including:
- Whether the loan is secured or unsecured: adding a high-value asset as collateral for your loan can significantly increase your business’ borrowing power.
- The value of your collateral (if secured): your collateral will need to be valuable enough to cover your loan amount. For instance, a $20,000 car won’t be suitable for a $100,000 loan.
- Your business’ turnover: naturally, businesses with higher turnover are more likely to have more money available to cover higher repayments, increasing the amount you can afford.
- Your business’ assets and liabilities: it isn’t just about collateral, as lenders consider the assets on your business’ books, as well as other outstanding debts, when calculating your borrowing power.
- The nature of your business’ bad credit: not all bad credit is made equal. For instance, a business with minor non-financial defaults from a few years back will be better off than one with several recent financial defaults.
How much will my business loan cost?
There’s a range of variables that can have a say in how much you’ll pay across the life of your business loan. These include:
- Interest rate
- Fees
- Loan amount
- Loan term
- Whether early repayments are made
Let’s take a look at how different interest rates and loan amounts can change the total interest you’ll pay overall:
| Loan amount | 15.00% p.a. | 17.00% p.a. | 19.00% p.a. |
|---|---|---|---|
| $25,000 | $1,994 | $2,267 | $2,542 |
| $50,000 | $3,988 | $4,534 | $5,083 |
| $75,000 | $5,982 | $6,800 | $7,624 |
Total interest costs based on a one-year loan term with fortnightly repayments.
Meanwhile, this table demonstrates how the time you take to repay your loan can impact its cost:
| Loan amount | Loan term | Interest rate | Fortnightly repayments | Total cost |
|---|---|---|---|---|
| $30,000 | Six months | 15.00% p.a. | $2,402 | $1,222 |
| $30,000 | One year | 15.00% p.a. | $1,246 | $2,385 |
| $30,000 | Two years | 15.00% p.a. | $670 | $4,794 |
Note that these two tables are used for illustrative purposes only and don’t necessarily reflect the interest rate or loan deal you’d receive when you apply.
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How to maximise your business loan approval chances with bad credit
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Bad credit business finance FAQs
No – there are no lenders who can offer guaranteed approval for bad credit business loans, as this is in breach of responsible lending obligations. All lenders must assess applications to ensure businesses are in a position to repay them, so guaranteed approval isn’t possible. You should steer clear of lenders advertising this, as it’s a red flag.
It’s possible to be approved for a business loan if you’re under a Part IX, but you’ll need to display positive personal and business financial behaviour, as well as meet all the other criteria set out by your lender. Your chances of approval will increase once you exit your debt agreement.
No – all lenders will conduct a personal and business credit check as part of the application process. This is part of the responsible lending obligations in place in Australia. However, if you’re worried about what might show up on your credit file, it’s worth understanding that there are lenders on the market with very flexible criteria. If one of our lenders is right for you, we’re here to help make it happen.
It can – as lenders will conduct checks of both your personal and business credit file, having poor personal credit can impact your chances of approval (or the rate you receive) for business finance. You can improve your score by following the same steps as above, namely clearing outstanding debts, continuing to pay them off on time and lowering credit limits where you can.
Yes – many lenders will accept a personal guarantee as part of your application or, in some cases, require it. This is essentially a commitment by you to be personally liable for the loan debt if your business becomes unable to repay it. This may be for the full amount or a limited percentage of the debt as agreed between you and your lender.
Provided you and your business meet the lending criteria of one of our partners, you can be approved for financing as a discharged bankrupt. You’ll have to show a positive financial record during and after your bankruptcy. If you’re currently bankrupt, you won’t be approved.
Yes – Savvy is partnered with a variety of lenders, including those who don’t charge any fees for early repayment. The sooner you pay off your loan, the shorter your term will be, so you’ll pay less interest overall as a result.
The interest on commercial loan agreements is typically tax-deductible, subject to the usage of your loan. For example, a loan used for business purposes only 85% of the time would only allow you to claim up to 85% of the interest on your repayments. However, it’s essential to speak with your accountant or another tax professional for any tax-related questions specific to your business.
No – there’s no requirement to pay a deposit as part of a business loan agreement. The only time you’d need to pay out of pocket is if your lender isn’t able to approve you for the full cost of the expense you’re looking to cover. However, if you’re purchasing an asset like a car or equipment with a chattel mortgage, lenders may require you to pay up to 20% or more if you aren’t asset-backed already.
The amount of time these things stay on your file depends on what the event actually is. For example, while bankruptcies and defaults will remain on your file for up to five years, financial hardship information will disappear after one year and repayment histories after two.
