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Having a poor credit score will make it more difficult to obtain financing, but not impossible.<\/p>\n
Banks consider a series of factors when assessing whether to give you a business loan. These include understanding the needs of your business, the project for which the loan is required, your business\u2019s current financial situation, and your personal credit score and net worth.<\/p>\n
A business\u2019s financial situation is the most important factor a bank considers when deciding whether to approve a loan. If your business is strong, growing and has positive\u00a0long-term<\/span>\u00a0prospects, you might still be able get a loan even if you have a bad credit score.<\/p>\n<\/div>\n<\/div>\n A credit score (also called a credit rating) is just one of the tools banks use to determine an individual\u2019s creditworthiness. It\u2019s a\u00a0three-digit<\/span>\u00a0number\u00a0between 300<\/span>\u00a0and\u00a0900 that<\/span>\u00a0represents your past credit behaviour (such as your ability to pay your bills on time).<\/p>\n The higher your score, the better your chances of getting approved for new credit from the banks.<\/p>\n A poor credit score falls in the range\u00a0of 300<\/span>\u00a0(the lowest possible credit rating number) and 559.<\/p>\n A fair credit score falls in the range\u00a0of 560<\/span>\u00a0to 659.<\/span>\u00a0A good credit score\u00a0is 660<\/span>\u00a0to 724,<\/span>\u00a0while a very good score is\u00a0between 725<\/span>\u00a0and 759.<\/span><\/p>\n An excellent credit score would be\u00a0between 760<\/span>\u00a0and 900<\/span>\u00a0(the highest possible credit rating number).<\/p>\n Credit scores are determined by credit reporting agencies such as Equifax and TransUnion. The factors that impact an individual\u2019s credit score include:<\/p>\n When you apply for a personal or\u00a0business loan<\/a>, banks will rely on the reports provided by the credit reporting agencies\u2014which include your credit score\u2014to help determine whether they should lend money to you or not.<\/p>\n \u201cMany people are not aware that their consumption habits can affect their credit score. And they don\u2019t realize that this can hamper their business as well,\u201d says\u00a0Val\u00e9rie Bornais,<\/span>\u00a0Manager, Sales Enablement with BDC. \u201cIn fact, they should know that financing is often granted based on personal credit history.\u201d<\/p>\n However, while your credit score is an important tool for assessing your creditworthiness, it is not the only thing banks will look at when reviewing your loan application.<\/p>\n<\/div>\n<\/div>\n Many people are not aware that their\u00a0consumption habits can affect their credit score.<\/span>\u00a0And they don\u2019t realize that this can hamper their business as well.<\/blockquote> Financial institutions review business loan applications based on the five Cs of credit.<\/p>\n The good news is that your credit score is just one of five criteria used by banks to assess your creditworthiness. So, if you\u2019re very strong in everything but the character criteria, there is still a chance you can overcome your bad credit score, says\u00a0Jamohl Rutherford,<\/span>\u00a0Manager, Entrepreneurship Centre, at BDC.<\/p>\n \u201cWe won\u2019t refuse you just because of a poor credit score,\u201d he says. \u201cBy highlighting the strengths of your business in the other four Cs, you can improve your chances of the banker making a favourable decision about your loan.\u201d<\/p>\n<\/div>\n<\/div>\n We won\u2019t refuse you just because of a poor credit score. By\u00a0highlighting the strengths of your business<\/span>\u00a0in the other four Cs, you can improve your chances.<\/blockquote> The following tips can help you improve your chances of having your application approved.<\/p>\n Banks will more likely approve your loan application when you can lower the risk your poor credit score poses to them. You can strengthen your application by doing the following:<\/p>\n Compared to established businesses,\u00a0start-ups<\/span>\u00a0with bad credit scores have the added challenge of not being able to provide any historical data about their capacity to service a loan. For them, it is crucial that they provide strong forecasts and showcase their ability to repay the loan.<\/p>\n \u201cWhen you have a bad credit score, you need to be very strategic and paint a really favourable picture for the remaining criteria,\u201d says Rutherford. \u201cIt\u2019s challenging, but not impossible.\u201d<\/p>\n Always be honest and upfront about what led to your bad credit score. Lying or trying to hide facts won\u2019t help your case. Provide context by describing the circumstances that led to your situation. This may help the bank look more favourably at your application, especially if you had a good credit score in the past.<\/p>\n \u201cA bad credit score may be the result of an unfortunate event beyond your control, such as a divorce,\u201d says Bornais. \u201cIf your business idea is sound, the bank will be more willing to take a risk and help you out.\u201d<\/p>\n Rutherford agrees that there are often good reasons for a credit score being low. \u201cWe always look at what\u2019s behind the number,\u201d he says.<\/p>\n “There are often good reasons for a credit score being low. We always look at what\u2019s behind the number.<\/span><\/p>\n<\/div>\n<\/div>\n Jamohl Rutherford,\u00a0Manager, Entrepreneurship Centre, BDC<\/p><\/blockquote>\n<\/figure>\n<\/div>\n<\/div>\n Consider teaming up with one or more associates who possess impeccable credit histories. Having a more qualified and financially sound management team may help tip the scale in your favour.<\/p>\n If you do form a team, it\u2019s important to have a lawyer draft an agreement that determines everyone\u2019s roles and responsibilities.<\/p>\n If you find a friend or family member to act as a guarantor on a loan, the person must meet the lender\u2019s eligibility criteria. The lender\u2019s decision will be based on a review of the guarantor\u2019s credit history and net worth.<\/p>\n The friend or relative must also be aware of the commitment they are making. Being a cosignatory on your loan will appear in their credit history and may limit their borrowing power. They must also be clear on the extent of their liability should you be unable to meet your obligations.<\/p>\n Although a bad credit score doesn\u2019t automatically preclude you from getting a loan, it can have other consequences on your business and financial situation. If you have a low credit score, expect higher interest rates than those with excellent credit scores. Application processing times will also take longer if you have a low credit score due to the increased level of due diligence required by the banks.<\/p>\n But poor credit is not forever, says Rutherford. Being aware of what may have contributed or still is contributing to your bad credit score is crucial\u2014and often the first step toward putting plans in place to\u00a0improve your credit score<\/a>. From there, you can greatly improve your chances of success with your next business loan.<\/p>\n \u201cUse your opportunities to improve your credit score and look at the process from the institution\u2019s perspective,\u201d he says. \u201cFinancial institutions want to help entrepreneurs and provide the financing they need, but they also need to make sound financial decisions.\u201d<\/p>\n\n\nGuide to getting a business loan<\/span><\/div>\n<\/div>\nWhat is a credit score?<\/span><\/div>\n<\/div>\n<\/div>\n<\/div>\n\n\n\n\n\nWhat is a bad credit score?<\/h2>\n
How are credit scores calculated?<\/h2>\n
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\n\n\n\nHow do banks evaluate a business loan application?<\/h2>\n
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\n\n\n\nHow do I get a business loan with a bad credit score?<\/h2>\n
Tip 1:<\/span>\u00a0Present a strong case across all five Cs of credit<\/h3>\n
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\nProviding an\u00a0in-demand<\/span>\u00a0service or holding a highly specialized degree will improve your chances of getting a loan approved.<\/li>\n
\nThe more capital you can contribute upfront, the more likely the banks will contribute to your project.<\/li>\n
\nComing prepared with supporting documents, such as contracts and purchase orders that demonstrate your ability to pay the money back, will increase your credibility with lenders.<\/li>\n<\/ul>\nTip 2:<\/span>\u00a0Be transparent<\/h3>\n
\n\n\n\nTip 3:<\/span>\u00a0Find partners<\/h3>\n
What are the other implications of a poor credit score?<\/h2>\n
Free or\u00a0low-cost<\/span>\u00a0credit reports<\/h2>\n