Getting Approved for Business Funding with Bad Credit

Many people across Canada have troubles with their personal credit score. Be it due to personal circumstances, mistakes managing money or due to reasons beyond your control, having built bad credit over the years can have a negative impact on any funding that you are trying to obtain moving forward.

It is hard to dig yourself out of a hole without help.

Bad credit can be a nuisance, as many banks, credit cards and loan providers may see you as a risk. A risk in providing you money, considering the negative experience you’ve already had – those that have caused the bad credit in the first place.

To be fair, it is natural; lending money is a business and asking for money with bad credit, you are seen as a risk.

Now, does that mean you should never get any funding?

How can you improve your credit score if nobody will allow you that chance to show your new, improved potential?

One way to start to improve your credit score is to generate more money – to be able to afford repayment of your existing bills. Either get a better job; manage your money better, to keep the money you do have coming in, better organized; or start a business – with the hope of success!

Getting approved for business funding

Much like getting approved for a personal loan, or a credit card, a bank may say no to getting you approved for business funding. But there are a few ways around it – unlike your personal situation.

With business funding, the few things you can do, include:

1. Have an amazing business plan and pitch that impresses the investor. Allow them to see the potential of your business first, rather than your previous history or managing money and your credit score.
2. Have collateral that you can put forward and show something of value. Collateral can be anything of value such as tools, equipment, a vehicle, home…etc. If a lender sees that you are willing to take on some of the risk by borrowing the money – you are in luck!
3. Starting a business may be hard on your own; but if you have a business partner or multiple partners, each partner’s credit history can be a part of the application process. This can give you a greater chance to secure and be approved for the funding your business needs. When picking the best business partner, it is a good idea to know the credit history and how this can benefit not only you, but the business situation overall – especially if funding is needed.
4. Much like having partners in the business, having a co-signer who will vouch for you if things go south, is also a favorable way to getting approved for business funding. Any bank or lender will use your co-singer, be it a friend, parent, relative..etc; as a way to determine your combined chances of repayment of the loaned funds, if need arises.
5. Alternative to bank loans, you may consider private funding in order to get your business approved. Private funding can often come in many forms, from interest based loans, equity loans and have specific conditions. Private investors may review your situation and decide to fund you based on your credit, but more so on the potential your business may have in the future. A good way to get funded, but a business plan and your pitch will be key here, in order to impress any investor.
6. High-Interest/High-Risk lenders are also a thing. While it may be appealing to go for the “we guarantee your approval of funding” ad, especially when you are in desperate need for funding – be careful of the 25 to 35% interest rates. These repayments can hurt your start-up business early on if not managed correctly.
7. There are hundreds of government funding programs available across Canada. This includes government grants, government loans and tax breaks. Some government options may review credit score as a factor, many agencies will not take it into consideration as a determining factor when deciding to lend you funding or not. This is especially true to the government grants and the tax breaks or credits. Checking the Funding Database is always a good idea to browse the 1,500+ available government funding options for starting a business.

If the 7 steps above to securing government funding does not work due to your bad credit, remember, you are only seen as a risk because you are not making enough money just yet. If you can manage to start up, even “small scale” on your own, and prove the concept of your business – the banks, agencies, lenders, they are all much more open to lending you the money with a minimal risk.

Things that can help get you approved is if you have money coming in – or work orders, promises to pay and such. These things mean that you will be paid and the lenders know they can take their “cut”; also decreases the risk of you getting denied due to your bad credit.