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  • How Do Bad Credit Loans Affect Small Businesses? Pt 1

April 22, 2019 / By dsadmin

How Do Bad Credit Loans Affect Small Businesses? Pt 1

Capital is king when starting any business, whether large or small. Every business needs to have constant access to capital capable of adequately funding its operations. Availing small business loans often turns out to be a wise choice in many cases. The traditional small business loan proves useful in funding startups, improving existing businesses, paying for marketing, or strengthening a running business’s financial foundation. Those having bad credit though, would find accessing small business credit cards a hard prospect.

Statistics on Small Business Loans

In 2016, the share of small businesses that opted for some form of financing came to around 45%. In the Small Business Credit Survey that year, it was shown that only 40% got the full amount they sought, and some sort of supplementary financing was availed by 76% of those that applied.

Moreover, it is widely known that negative growth in business happens when there is a dearth of available capital. In a report from Small Business Administration Office of Advocacy of US, it was found there was a decline of profit due to insufficient financing in 15% of new businesses, and 7% of old businesses.

What are Actually Bad Credits?

According to FICO, all those credit scores which fall below 640 are branded as “bad credit”. The score totally depends on dependable repayment of debts, and creditworthiness. A bad credit number may be marked if you neglect to repay the debt on time, i. e. you then get a history of poor repayment.

Establishments that lend, would research your FICO score before each transaction. Once they are satisfied with it, they would think little of the level of risk they stand to shoulder. Credit scores range from 300 and upwards; in order to be entitled to a bad credit loan, you generally still need to rate at least 600. Besides the FICO score, there are several other criteria to measure the standard of a company, such as its vantage score.

Criteria for Loan Lending

For those with under 670 FICO score, the marking for bad credit is already done, as the factors are more than enough for money lenders to assess their low creditworthiness. The situation worsens in the case of traditional bank lenders trying to get small business loan approval when their score lands over 300 and under 670.

The factors which turn out to be the major criteria to get approval for small business loans according to Jay DesMarteau, TD Bank head for regional commercial specialty segments, are as follows:

  • Credit History
  • Collateral Coverage
  • Cash flow

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