Business loans with bad credit: what lenders look at and what you can do

Sometimes, but not always, and rarely on the terms a business with a clean record would get. People searching for bad credit business loans are usually asking whether any lender will look at them at all. The honest answer is that a poor credit record narrows the choice, usually raises the cost and often means the lender wants security or a guarantee. No lender has to say yes, and every application is subject to status and lender criteria.

This guide explains what a credit file shows, what lenders weigh beside it, which kinds of finance rest on something other than the score, and how to improve your position before you apply. It also covers when borrowing is the wrong answer.

A credit file shows a lender how you or your business have handled credit and bills, along with public records such as court judgments and insolvency. Credit reference agencies collect this information and give it to lenders, who use it to decide whether to offer credit. The Information Commissioner’s Office (ICO) names Equifax, Experian and TransUnion as the main agencies for individuals.

Two files can matter. A personal file, in the ICO’s description, mostly covers how you have kept up your credit and utility accounts, with previous addresses and public records including county court judgments, bankruptcy and insolvency data. A business credit report, as the British Business Bank describes it, covers the business’s details, its score, its payment history, public records such as judgments and registered charges, its financials and its trade references.

Lenders commonly read the owners’ personal files as well as the business’s, particularly for sole traders, partnerships and directors who are asked for a guarantee.

A County Court Judgment stays on the Register of Judgments, Orders and Fines for six years, unless you pay the full amount within a month. The ICO’s summary of agency practice is that defaults, bankruptcies, individual voluntary arrangements and judgments are generally shown on a credit file for six years.

GOV.UK says banks and loan companies use the register when deciding whether to give credit. Registry Trust keeps the register for England and Wales on behalf of the Ministry of Justice, and its TrustOnline service lets you search it, along with the registers for Scotland and Northern Ireland.

Lenders look at whether the business can afford the repayments now, and what they can fall back on if it cannot. The credit file records the past. The rest of the application is evidence about the present.

• Trading performance. How long you have traded, what you turn over and whether sales are steady, rising or falling.
• Bank statements. Recent statements show real money in and out, including returned payments and how close the account runs to its limit.
• Existing borrowing. What the business already owes and what the repayments take each month.
• Security. Property, equipment, invoices or other assets the lender could rely on.
• Guarantees. The British Business Bank notes that lenders typically require a personal guarantee for unsecured loans. It makes the debt yours if the business cannot pay.
• The explanation. What caused the problem on the file, whether it is settled and what has changed since.

Finance secured on an asset, on your invoices or on your card takings gives the lender something to rely on besides your credit history. That can make a lender willing to consider a case. It does not remove the credit assessment, and it moves the risk onto your assets or your sales.

If you sell to other businesses on credit terms, invoice finance advances money against invoices you have already raised. If most of your income arrives by card, a merchant cash advance is repaid from a share of those takings.

Weaker credit usually means a higher price, a smaller amount, more security, or all three. That is how lenders price risk, so work through how to compare lenders’ offers on the total repayable before you accept one. Our directory of business lenders by product type shows what each publishes about its own criteria.

If one of nine of the UK’s largest banks declines your small or medium-sized business for finance, it must offer to refer you to government-designated finance platforms. This is the Bank Referral Scheme, in place since 1 November 2016. With your consent, the bank passes your details to three designated platforms, which share them in anonymous form with other finance providers. The British Business Bank says the details are passed on by the next working day.

Treat a referral as a second look, not a promise. HM Treasury’s figures for 1 November 2016 to 31 March 2026 record 132,636 referrals and 6,905 deals, worth about £161.8 million. That is a conversion rate of 5.2%, or around 1 in 20 referred businesses receiving finance. The figure covers every business referred, whatever the reason for the decline, so it is not a measure of your own chances.

Start by reading your file, because you cannot fix what you have not seen. Then work through these steps.

1. Get your report. You have the right to a free copy of what a credit reference agency holds about you. Look for the “statutory report” option, not a paid subscription.
2. Correct errors. If an entry is wrong or out of date, ask the agency and the firm that recorded it to put it right.
3. Deal with judgments. Pay what you can. A judgment paid in full after the first month can be marked “satisfied” on the register, so check that it has been.
4. File on time. A private limited company’s annual accounts are due nine months after its financial year ends. Companies House filings are public, and lenders read them.
5. Pay suppliers and lenders on time. Payment history is part of a business credit report.
6. Space out applications. A soft search does not affect your credit score, but a full application to a lender may involve a hard search that is recorded on your file.

A file improves over months, not days. If the need is not urgent, waiting can cost less than borrowing now.

Avoid any firm that asks for money before it has lent you any, pushes you to sign quickly or will not put the total cost in writing. Being declined elsewhere is no reason to accept any of these.

• Upfront fees. A payment requested before any agreement exists, which nobody will explain in writing.
• Pressure. An offer that expires today, or no time to read the agreement or take advice.
• No clear total cost. Costs given only by phone, or a rate with no figure for the total you will repay.
• Promises about the outcome. A firm that says you will be accepted whatever your record, or a lender that says it will not look at your credit file.
• Details that do not match. A company name, number or address that differs from Companies House or, where the firm says it is authorised, the FCA Register.

On the fourth point, the FCA’s rules for regulated credit say a firm must not state or imply that credit is available regardless of the customer’s financial circumstances or status. A responsible lender checks, and tells you that it does.

Borrowing is the wrong answer when the gap is a lack of profit, not a matter of timing. Speak to the people you owe before you miss a payment. For a tax bill you cannot pay in full, you may be able to set up a Time to Pay arrangement with HMRC.

Free debt advice exists and is worth using early. GOV.UK’s guidance on tax debts names Advice NI as a source of free debt advice in Northern Ireland. Elsewhere in the UK, look for a free, impartial debt advice service before you pay anyone for help.

Capzy is a credit broker, not a lender, and gets paid by the lender. We cannot change what is on your file or how a lender reads it, and the lender makes the decision.

You can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and all funding is subject to status and lender criteria.