There are an estimated 1.5 million Australians with bad credit, and this figure is only set to grow as the economy improves. And for businesses that require a loan from a financial institution, it can be challenging to find a lender that will approve someone with bad credit. However, there are specific types of bad credit business loans in Australia, and these loans can be an option if the terms are suitable for the business.
Some of the most popularly known loans available to businesses with bad credit are business and commercial loans. As such, business loans are typically shorter-term loans used to finance smaller projects, while commercial loans are more complicated and are used to finance more extensive projects. Both types of loans can have higher interest rates than standard loans, but they also have restrictions on how much money can be borrowed and how long the loan can be taken out.
What Is Bad Credit?
A credit score is a measure of a person’s creditworthiness, and it shows whether the borrower can afford to borrow money and how much interest they have to pay. So a good credit score is above 720, and bad credit is a credit score below 620.
When Should You Get It?
If the credit score falls into the “poor” category, the borrower may be able to qualify for a business loan with a lower interest rate. However, some requirements must be met before applying for bad credit business loans in Australia, which are:
- Need to have excellent repayment history and meet monthly payments on time.
- Make sure the loan amount is appropriate for business size and GDP.
- Verify that the lender is adequately insured.
- Check the loan agreement terms carefully to ensure that the borrower gets the best possible deal.
Can a Borrower Get a Business Loan If the Company Isn’t Incorporated?
Yes, if the business is not incorporated in Australia, the borrower can still get a business loan. This is because some lenders will still provide loans to businesses that are not incorporated. However, some important considerations should be taken into account when applying for a non-incorporated business loan. For example, it is often easier to obtain a loan if the company has an established track record and is well known in the market. Additionally, it is essential to ensure that the borrower can afford to repay the loan, as bad credit can often result in higher interest rates and more difficult repayment conditions.
So the availability and cost of loans vary depending on individual circumstances. However, there are a few key points to keep in mind if considering a business loan with poor credit, which are:
- First and foremost, make sure to understand eligibility requirements. And to qualify for a business loan with poor credit, one needs to meet specific income and credit score thresholds.
- Next, be prepared to pay interest rates typically higher than those available to borrowers with better credit scores. This interest rate is applicable because lenders are more likely to lend money to businesses with lower credit scores than companies with solid credit scores.
- Finally, be realistic about the timeline for repayment. Many lenders require borrowers to repay business loans within a fixed period (e.g., three years). So if you’re unable to afford to repay the debt on schedule, discuss the options with the lender.