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Written byShaun McGowan
Bad credit business loans allow businesses in Australia to access cash that may not be available through other forms of finance.
Shopping around for the right loan can save you thousands of dollars in interest and fees.
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.
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:
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 lender.
You may also need to supply collateral, or be asked to include a guarantor on your loan.
The approval process for bad credit business loans is similar to other types of small business loans, but puts greater focus on your ability to prove you can repay your loan and how the money will benefit your business.
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:
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.
This can be a good way of improving your credit score and building trust with a lender. For example:
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.
Money.com.au aims to clear up the confusion around rates and approval, so we can provide the best consumer experience possible. We only show you real, personalised rates from lenders who can give you approval on the loan. No hidden fees, no inflated rates, no stress, and no impact on your credit score.
Just real rates, from real lenders, who you can apply with immediately to get real deals. (Yes, really!)
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 score.
As this type of finance presents a high level of risk to a lender, they will often require more extensive documentation to assess your application.
Money Tip: Business finance brokers operate all across Australia, and you can find one of these experts to help you with a bad credit business loan whether you're located in Melbourne, Brisbane, Sydney, Adelaide, Perth, Newcastle, or Canberra.
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.
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.
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.
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.
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.
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.
Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.