Stage of Grief: Applying for a Small Business Loan with Bad Credit


It’s not a pleasant experience. You walk into a bank or lending institution with your business plan in place, references and other necessary documents to show that you’re a serious and motivated entrepreneur. Still, the dreaded question needs to be answered. “What’s your credit score?” It’s a burden that brings stress to many aspiring entrepreneurs and unfortunately, one that haunts millions of Americans today. The bottom line is that most individuals have poor credit. Although having a bad credit history turns away most small business lenders, there are those who will approve loan applications, but with severe business loan penalties attached.

One of the downfalls of applying for a small business loan with bad credit is that interest rates are higher than that of applicants with excellent credit histories. This of course is a deterrent for entrepreneurs of small business, but in addition to the high interest rates, small business lenders may also tack on certain business loan penalties for paying off a debt in full early.

A prepayment penalty is a fee charged when a small business loan is paid off before the scheduled date of the last payment. Because the small business lender doesn’t receive the entire interest they would have received if the payment schedule had been kept, a prepayment penalty is put in place to recoup some of the lost profits.

If the interest rates are low, it could be preferable to pay off the loan early. In other cases, where the rates are high, spending capital on business loan penalties may be a waste and would be better served elsewhere. Regardless of the case, anyone applying for a small business loan with bad credit should be aware that options are available to them. They must simply find the right small business lender and shop for the best rates.