Will bad credit stop me taking out start-up business finance?

Your credit score is a factor – but choosing a lender with a people-powered decision making process could increase your chances of getting a loan

If you have a start-up idea you believe in, don’t assume that a history of bad credit will scupper your chances of funding it with a loan.

The truth of the matter is lenders do lend to individuals with bad credit, although the number of lenders you have access to will be more limited than somebody with good credit.

Understanding credit

There’s a difference between your credit history, credit score and credit report.

Your credit history is a record of your responsible and irresponsible payment of debts. Your credit report is the name given to that information summarised, which also includes personal information. Your credit score is a three-digit number that determines how likely you are to be accepted for credit. It’s based on your credit report.

Of all three, it is one’s credit score that most business owners get hung up over. And rightly so too. A low credit score can hamper your ability to take out a business loan with some lenders. High-street banks, for example, don’t usually cater for business owners who have a low credit score. However, it isn’t the only criteria lenders look for.

Lending criteria for small businesses

With start-up finance, most lenders look at the following:

  • Credit score
  • Business plan
  • Cash flow forecast
  • Collateral
  • Potential assets
  • How you intend to use your funds
  • Yours and your partner’s experience (if applicable)

We have put credit score at the top of the pile here, because with many lenders it is the be and end all. Basically, if you have a low credit score, you ain’t getting funds.


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However, assuming you apply with the right lender, the other criteria come into play – and it is here where you can make up ground and put in a great application.

Make sure you apply with the right lenders

As pointed out already, if you have bad credit you will have a smaller pool of lenders to choose from. The key difference is, you shouldn’t apply with most lenders who use an automated decision-making system. Why? Because the system will say no as soon as you tell them your credit score, or after they check it.

What you want to do is apply with lenders who use people to review proposals. This way, your application will be reviewed in person. It gives you a better opportunity to explain your start-up and your own experience. Lenders who review proposals in this way are more likely to give you the funds you need for your start-up.

One such lender is Nationwide Corporate Finance. They specialise in start-up business finance and review all applications individually. They lend to start-ups based on their business plan, cash flow forecast, other financial information and experience. Yes, your credit score with such a lender still plays a role in the decision process, but it’s less of a determining factor.

Remember also that since you have bad credit, some lenders will charge you a higher interest rate than start-ups with good credit. You might also be given a smaller credit limit.