Bad Credit Business Loans in New Zealand

Beginners Guide To Bad Credit Business Loans

Beginner Guide to

Bad Credit Business Loans

Getting a business loan can be hard and if you add bad credit in the mix then it becomes much harder. Not to worry we have helped 1000’s of small business owners get business loans even with very bad credit. The key is to understand how the lenders look at a business before approving a business loan. Lets look at the basic of it and find ways to increase your chances of getting approved. 

About 60% of small business have taken business loans to get started

Unless you are the lucky kind of entrepreneur, you will need a business loan at some point in your business. You may need to finance your cash flow deficit when your business is still young and not making enough profit.

There might be a piece of equipment that you need in your daily business activities whose purchase you need to finance using a business loan. Many businesspeople also take business loans to finance growth and expansion. Regardless of the use, a business loan is almost a necessity in business. So now lets look at where we can get one. 

Uphill task to get poor credit business loans

Taking a business loan for a business with a respectable stream of revenue and good credit rating is quite easy. Many financial institutions will not hesitate to lend to such a business. However, if a business has a poor credit score, getting a business loan will certainly be an uphill task. Lets look at the basics of credit score and see how it affects your ability to get finance. 

What is a credit score and how does it affect you in getting a business loan

A credit score is a number that shows the customer’s creditworthiness. According to Fair Isaac Corporation (FICO), this number should be between 300 and 850. The higher the credit score, the more creditworthy the customer is. This number is affected by many factors with the major one being how you have repaid your loans in the past (35% of the credit score). Banks use this number to determine whether you are a risky borrower or not.

How is business credit score calculated?

Businesses are also evaluated on the same basis as individuals. Lenders will have a business credit file which they use to assess individual businesses and classify them according to their creditworthiness. Business creditworthiness is rated on a scale of 1 to 100 using the Dun & Bradstreet PAYDEX score or 300 to 850 using the normal FICO score. This number is deducted from the business credit report that contains all the borrowing information about a certain business entity.

A business credit score is determined by factors such as :

  • Payment history
  • Industry risk
  • Debt amount and
  • Debt usage
  • Size of the company
  • Age of credit history

Can you get a bad credit business loan in New Zealand ?

A business credit score of 75 is considered good by lenders and suppliers when advancing loans or giving goods on credit. However, even with a lower credit score, a business can still be able to access a loan.

Although it is very possible to get a business loan with bad credit, it might take more time and effort than it would when getting a normal business loan. You will have to convince the lender beyond a reasonable doubt using both words and actions that you will repay the loan. That the poor business credit score does not in any way affect your ability and willingness to repay the loan.

What credit score is considered as bad credit for business loans ?

If you are looking for a business loan from a financial institution with a credit score of 500, you will find it hard to get a loan. It shows a lack of credit history or past credit difficulty. A credit score of 300 to 579 is considered to be very poor when it comes to business loan in New Zealand.

Any person or business with such a low credit score is considered a risky borrower and can only get a subprime loan. As we pointed out, some lenders give low credit loans. However, they charge a very high-interest rate to compensate for the risk involved. 

How to get a startup business loan with bad credit and no collateral

Small businesses find it extremely hard to get business loans from financial institutions (Traditional banks mostly). This is because their risk of falling into financial trouble is much higher. It is also because they do not have any collateral to secure their loans. 

Top 3 things that can hinder startup business finance in NZ : 

1 : Age of business : The number of months or years that you have operated your business will affect your overall business credit score. A business that has existed for longer will have a higher business credit score than a business that just started. (holding all other factors constant).

2 : First year of operation : Many businesses do not survive their first year of operations. Many founders give up along the way when they don’t make money as fast as they had anticipated. They cannot endure that period when businesses make losses. That period is when founders support the business before the business can start supporting them. This is why young businesses are considered high risk by lenders.

3 : Lack of business essentials : Startups also do not have a tested management team, business model, and products. They can be wiped out by one simple disruption because most inexperienced founders and managers do not have the required skills to thrive in the ever-changing marketplace. This means that small businesses can be out of business more easily than older businesses with experienced managers and products that have stood the test of time.

Top 5 proven ways to get bad credit business loans in New Zealand

1 : Have a high personal credit score

A personal credit score for the owner of the business will dilute the effects of the poor credit score of the business. The lender will give the loan by considering the creditworthiness of the founder. Even if the business cannot be trusted, the owner has proved to be trustworthy when it comes to borrowing and paying the debt.

You can increase your personal credit score by:

  • Pay off your credit card debts. By paying off the debt, you will reduce your credit utilization which increases your credit score. Credit utilization makes up 30% of your credit score. This is one of the highest factors that affect the credit score coming second only after payment history which takes 35%.
  • Ask for higher credit limits. Getting a higher credit limit has the same effect as paying off your debt; it reduces the credit utilization which increases your credit score.
  • Avoid late payments. Always pay your dues on time. No matter what you are paying for, paying promptly will always have a positive effect on your credit score.
  • Question when you find errors on credit reports. There might be errors on your credit reports which may be lowering your credit score. Make sure that those errors are corrected and your credit score will improve instantly.

2 : Have a guarantor

A guarantor is a person who agrees to repay your loan in case you default. When a guarantor is involved, the lender will advance the loan based on the creditworthiness of the guarantor ad not necessarily the business entity with the low credit score. For this reason, the guarantor has to have a high credit score to be able to get the credit trust.

3 : Visit a bad credit lender

Some lenders deal with businesses and individuals that have bad credit. This means that they are not very concerned with your credit score. They are lenient in giving loans and this would be an advantage for a business with a low credit score.

Some lenders will also have a soft spot for small businesses and startups. Such lenders are a good place to start if you are a small business that is struggling with a low credit score and no collateral.

These are lenders that will have the following in their marketing messages: “small business loans bad credit”, “business loans no credit check”, “startup business loans for bad credit guaranteed”, “long term business loans for bad credit”, “startup business loans with bad credit”. Such a lender will most probably not be very strict with your credit score.

4 : Write a clear business plan

A business plan is a document that shows how the business is going to make money in the short, intermediate, and long run. It contains the strategies you will use to push your products, beat your competitor and dominate the market.

A well-written business plan will help the bank review whether your business is likely to succeed or is doomed to fail. If the business plan has clear steps and strategies for making money, the lender can bet that the document will be well implemented to bring about the desired results. Even without a high credit score and collateral, some lenders will give you a business loan if your business plan is well written.

5 : Apply for a smaller loan

Lenders do not want to risk big amounts of money on startups. They can however gamble when it comes to smaller amounts. After all, in case you do not repay the loan, the lender will have very little to lose. Come up with an articulate plan of how you are going to use the small loan that you are applying for. Show the banker how that small amount of money will generate more money for your business.

After some time, you can also apply for a long term business loan for bad credit. Long term business loans for bad credit will be harder to get but after you repay your smaller loan well, your credit score will start to rise slowly but steadily.

How to start a business with bad credit and no money?

It is very possible to start a business with bad credit and no money. There are numerous ways of doing this, lets look at 4 tried and tested ways to start a small business with no money in New Zealand

1 : Have a brilliant idea

The first step when it comes to starting a business with a bad credit score and no money is to come up with a brilliant idea that is easy to execute and that has a high degree of scalability. A good idea will always attract funding from external sources.

2 : Write a clear business plan

A clear business plan will tell the owners of capital how you will make money and repay them. This is a good way of showing the financiers that you know what you are doing and you understand the specifics of your business. It shows that you have a plan for the present and the future which is invaluable in business.

3 : Look for venture capitalists

Venture capitalists are firms that invest in high-growth businesses. They give the small businesses money in exchange for some shares in the company. It is important to note that venture capitalists do not invest in any business, they only invest in a business that will easily repay the money they invested. These are business whose idea is timely, innovative, and executable.

4 : Look for angel investors

Angel investors are individuals who invest in small businesses that are showing signs of high growth and scalability. These investors will always take up shares in the company in exchange for the money that the small business desperately needs. These investors will want to take out their capital in the shortest time possible. Make sure you have an exit plan for them before you pitch your business idea.

Since it is possible to start a business with bad credit and no money, your personal credit score does not affect your ability to start a business. However, it affects your ability to get financing from mainstream financial institutions. You can opt to get financing from other sources including family and friends, personal savings, crowdfunding, angel investors, etc. It is however important to make sure that you are making effort to increase your credit score because you will most probably need a bank loan to expand your business.

Bad Credit Business Finance

A low business or personal credit score is not the end for you and your business. You can still get financing to start a business and scale it. You just need to evaluate your present circumstances and the options available to you. Many institutions are still willing to give bad credit business loans.

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