Bad credit business loans are a type of short-term business finance designed for businesses (and business
owners) with a poor credit score or a history of defaults or dishonours. A bad credit history presents a
greater risk to lenders, so interest rates will often be higher than other forms of finance.
In this guide, you’ll learn:
A bad credit business loan in Australia is similar to an unsecured business loan - lenders will generally look at the credit history and revenue of the business to determine whether it is eligible for a loan. They can provide access to funds when a business is unable to obtain finance approval elsewhere.
If you are approved:
A lender will provide you with access to funds.
You will have immediate ownership of anything purchased.
You will make regular repayments to the lender for a fixed period of time.
To apply for a bad credit business loan, you’ll need to follow the same steps as with most applications for business finance. Although the available pool of lenders will be smaller than for other types of short-term business loan, you should still be able to speak to:
A finance broker
Specialist subprime lenders
Bad credit business loans are generally used by individuals who have either defaulted on a previous
loan or have some negative history on their credit file. They can also be used
by the director of a business when personal or business assets are tied up due to court
proceedings - such as divorce - or if the director has a poor individual credit
In Australia, this type of business finance is often used by:
Business directors involved in a Part IX agreement
Business directors with a poor individual credit score
Businesses where assets are tied up in court proceedings or cannot be accessed
Businesses where there is uncertainty over the ability to repay the loan
The qualifying criteria is similar to an unsecured business loan. Most lenders will be able to provide options if you have:
Been trading for at least 12 months; and
Have an ABN (Australian Business Number); and
Are registered for GST.
However, you can still apply if you:
Are a sole trader
Have been trading for between 6 - 12 months
Some lenders will consider applicants that have been recently discharged from bankruptcy,
usually for a minimum of six months. There will be fewer lenders to choose from, and you
should expect higher interest rates and fees reflective of the increased risk to the
You may also need to supply collateral, or be asked to include a guarantor on your loan.
Before you apply for a loan following bankruptcy, consider:
No lender will offer guaranteed approval on a bad credit business loan in Australia. However, there are many ways you can improve your chances of gaining approval, such as preparing a business case for how you will use the funds and how borrowing the money will help grow your business.
The process for bad credit business loans is similar to other types of business finance, but puts greater focus on your ability to prove you can repay your loan and how the money will benefit your business.
To increase your chances of approval, you should prepare a business plan to illustrate:
How you intend to use the funds to grow or support the business.
Financial projections for the business following funding use.
Details of business expenditure and how you plan to successfully repay the loan.
As this type of finance presents a high level of risk to a lender, they will often will require more extensive documentation to assess your application. Here’s what you may need to provide to a lender when applying:
Proof of identity
An ABN and GST registration
An acceptable credit rating - the lender will ask to conduct a credit check
Business bank statements
Trust Deed if the business is held in a trust
Australian Tax Office (ATO) Portal access
Financial records (provided by your accountant)
Profit and Loss Statements
Details of the asset you wish to purchase
The amount a lender will approve for a bad credit business loan will greatly depend on how much your
business can afford to borrow. Depending on your risk profile and your capacity to
service your repayments, you may be able to borrow between $5,000 and $150,000.
You can use the Business Loan Calculator to quickly estimate your repayments on offers available from various lenders.
This can be a good way of improving your credit score and building trust with a lender. For example:
Your business wants to borrow $50,000
A lender may only be comfortable approving a $20,000 loan
You show that you are capable of repaying the $20,000 loan
The lender may increase the amount of available credit for future loans at a lower interest rate.
Most lenders will offer a bad credit business loan for a term of 1 - 12 months. The shorter terms compared to other forms of business finance are due to the increased risk presented to the lender.
Interest rates on bad credit business loans can range anywhere from 15% to 35%. The actual rate applied to your loan will be dependent on a number of factors, including:
Bad credit business loans allow businesses in Australia to access cash that may not be available through
other forms of finance.
Gives a borrower fast access to cash
Is often only assessed on the cash flow strength of a business
Will likely have higher interest rates and fees than other forms of business finance
May not require any collateral or security
May require a personal guarantee from the director of the business
Yes. However, there are different lenders who will consider your application and assess it under their individual criteria. For example, your bank may not approve a bad credit business loan based on the risk you present as a borrower, but a specialist subprime lender may approve your application based on the strength of your current business revenue alone.
Yes. Bad credit business loans can be used for any genuine business purpose, including the purchase of new business assets to replace your existing ones.
Fees for a bad credit business loan will vary from lender to lender. You may be charged an initial set-up fee, monthly admin fees, and more. Each lender will have different rates and fees, so it’s important to compare which is most suitable for your business and will match your ability to repay the loan.
No. In most cases, a deposit will help you get a better interest rate, and offering security - such as your personal assets - on the loan may also provide a better rate. As approval for a bad credit business loan is determined by the current cash flow of the business, you won’t be required to put down a deposit if you’re willing to accept higher interest rates or fees.
Interest rates will typically be higher for bad credit business loans than other forms of business finance. Unless you are able to provide collateral on the loan as security, you will likely be offered interest rates in the same area as an unsecured business loan.
Yes. It’s highly likely you can repay your bad credit business loan early, though you should carefully read the fine print of your loan agreement to determine if there will be any extra payment charges or penalties. If there are, then it may be detrimental to your business finances to repay the loan earlier than stated.