If you’re looking for info about how to get a small business loan with no credit check then you’ve come to the right place. Most loan providers will require a credit check to be run before they approve a business loan application. But that’s not always the case since there are several types of financing that will not review your credit history. In other words, you can obtain small business loans with no credit check, if you go about it the right way.
Here, we’ll discuss why lenders perform credit checks, why you may want to avoid them, which types of loans you may qualify for without harming your credit score, and more. Keep reading to discover lots of useful tips about how to get a small business loan with no credit check.
Why do lenders want to perform a credit check?
The reason that lenders want to perform a credit check is to determine your trustworthiness as a borrower. Your credit score is used by lenders as an indicator of your ability to pay back a business loan in a reliable manner. If you’ve demonstrated your ability to make repayments on time and in full, then, as a result, your credit score will be higher and you’ll be more likely to get approved for a business loan by lenders.
If your credit score is on the lower end of the scale (which ranges from 300 to 850), then you’ll likely be on the lookout for small business loans with no credit check. Fortunately for business owners who have poorer credit scores, there are ways to get a small business loan with no credit check. But, that doesn’t mean that everyone can get a small business loan with no credit check – it just means that the loan provider will assess your reliability as a borrower in other ways.
Alternative ways that lenders can judge your quality as a borrower may include looking at:
- Number of business transactions per month
- Average size of business transactions
- Monthly bank balance
- Existing loans
- NSF (non-sufficient funds) alerts
- And more…
To qualify for start-up business loans with no credit check, borrowers may also be required to provide a form of security before they can receive the funds. That security is typically in the form of valuable assets such as business equipment or real estate. The bottom line is that lenders want to be as sure as they can be that they’ll get repaid when they lend money to businesses.
5 No credit check business loan options
1. Business line of credit
Similarly to the way a credit card works, a business line of credit allows for funds to be borrowed on an as-needed basis. Loan providers will only charge fees or interest on money as it’s used. Additionally, an LoC is typically revolving, which means you can use funds, repay them, and then use them again.
Let’s use a quick example to explain. Say you were approved for a business line of credit of $60,000 and you withdrew $20,000 to cover an expense. You would then be obligated to pay back that $20,000 plus interest. But once you’ve finished repaying that amount, your LoC would return to the original $60,000.
That’s different from a lump-sum loan in a crucial way. For example, if you received an unsecured business loan of $60,000 and used $10,000 of it, you’d be able to use the remaining $50,000 but the original amount wouldn’t replenish.
While most of the time a hard credit check is required in order to qualify for a small business line of credit, applying through Become is free and only includes a soft credit pull. You can match with dozens of top lenders, such as Fundbox who has no minimum credit score requirements for lines of credit.
2. Invoice factoring
If you have a difficult time handling unpaid invoices from non-paying customers, then you may find invoice factoring as a useful type of small business loan with no credit check. Invoice factoring is the process of selling overdue invoices to a lender who typically pays the business owner around 80% of the due amount upfront, and the remainder (minus commission) after collecting. This is extremely helpful as a strategy for quickly freeing-up cash that you’re owed in order to keep your business running at full capacity.
When applying for invoice factoring, lenders won’t be so concerned with your credit score. Instead, they’ll be more focused on the creditworthiness of those clients of yours who they’ll be collecting payments from. In other words, when it comes to invoice factoring lenders will determine your eligibility based on the reliability of your customers to pay their invoices, not on your ability to repay the loan.
Since lenders who provide invoice factoring, like BlueVine, are essentially purchasing your outstanding invoices at a discount, there’s little need for them to take your credit score into account.
3. Merchant cash advance
A merchant cash advance is a lump-sum loan that a business owner repays through automatic deductions from their future credit and debit card transactions. Compared to other start-up business loans with no credit check though, MCA’s have higher interest rates. It’s important to carefully consider whether or not you can afford to repay an MCA before you apply for one. But it is worth mentioning that they do offer fast access to funding, flexibility in how they can be used, and the ability to qualify with no credit check.
While they’re normally treated as a last-case-scenario financial solution, merchant cash advances are especially useful for small business owners looking for quick access to small business loans with no credit check. Not every MCA is available with no credit check, but you can qualify with Bitty without impacting your credit score.
4. Rollovers as Business Start-Ups
Rollovers as business start-ups (ROBS) is a way for prospective business owners to use their retirement funds from a 401(k) or IRA to pay for new business start-up costs with no early withdrawal fees or taxes. Since the retirement funds are your own, you’re not borrowing, so there’s no credit check that you’ll need to undergo before receiving the funds.
That’s not to say that a ROBS is going to be the easiest way to get start-up business loans with no credit check. It can be a complicated process for the average Joe or Jane to go through alone, which is why it’s always recommended that you get the assistance of a financial advisor.
The internet age has opened up new possibilities to not just handle money, but to access additional financing as well. Crowdfunding allows individuals to start campaigns online that are designed to attract investors to contribute to their businesses. Essentially, you create a page with a pitch about why your business deserves investment, and then share that page across your social media pages and through email campaigns.
Oftentimes, investors will be offered an incentive to make a contribution, such as discounts, free products, or even equity in the business itself. It may technically not be a start-up business loan with no credit check, but crowdfunding is still an effective tool to obtain extra funds without undergoing a credit check.
Side note: Start-up fundraising takes knowledge, persistence, and creativity. Be sure to get yourself prepared for the journey ahead with a solid strategy for avoiding common mistakes made in the start-up fundraising process. You can start by considering the following types of start-up loans with no credit check.
Why you might not want a credit check
There are many reasons why a business owner may want to avoid getting a credit check when applying for a loan. We mention a few of them just below.
3 reasons you might want to avoid a credit check:
- You don’t want to do damage to your credit score
- You don’t want your weak credit score to stop you from qualifying
- You want or need quick access to money
Typically when people talk about credit checks, they’re referring to hard credit checks. Those are the kind that, when conducted, will reflect negatively on your credit score. But not all credit checks are equal!
There is such a thing as a soft credit check, which on one hand provides the lender with less information about you, and on the other hand, doesn’t have an effect on your credit score. Soft credit checks are useful for loan providers who want to perform a preliminary assessment of your creditworthiness. But, even if a business loan application begins with a soft credit check, at some point a hard credit check will take place prior to you receiving the money.
The advantage of a soft credit check is that you can essentially get pre-approved for a small business loan without risking damage to your credit score. Which brings us back to the three reasons why you may want to stay away from having a credit check done.
1. You don’t want to do damage to your credit score
Depending on several factors, a hard credit check may or may not damage your credit score. According to FICO, if a penalty does apply, it would be a fairly small deduction of 5 points or less. That may not seem like such a bad thing, but the more credit checks you have, the more those deductions stack up and the more apparent it becomes to lenders that you’re looking to borrow money. Those are good reasons for a business owner to be careful about having a credit check done too often.
2. You don’t want your weak credit score to stop you from qualifying
When applying for small business loans, some lenders may see a weak credit score as a disqualifying factor. For that reason, it’s understandable that business owners who already have a poor credit score will avoid applying for business financing altogether. It may come as news that you can, in fact, qualify for business loans with a low credit score.
The LendingScore™ technology that was designed and developed by Become uses advanced algorithms to analyze a business’s financial profile from top-to-bottom, taking into account many funding factors – not just credit scores.
So if you’re concerned that you’re unable to qualify for a business loan because of your credit score, you can still apply through Become and see which loan providers can help you without posing a risk to your credit score in the process.
3. You want or need quick access to money
The process of conducting a hard credit check can slow down the overall business loan application process. It’s natural that a small business owner in need of a fast business loan would prefer to avoid a credit check. Fortunately, the types of small business loans you may qualify for with no credit check also tend to have short waiting times for access to funding.
Do credit checks really hurt your credit score?
Credit checks can hurt your credit score, but that depends on several factors. First and foremost, only hard credit checks will impact your credit score. If you’re considering having a soft credit check done, then you have nothing to worry about since it won’t affect your credit score at all. Likewise, if you’re just checking in on your credit score by yourself, then you’re not risking damaging it.
Secondly, if it is a hard credit check that you’re deciding on, it still may be harmless to your credit score. There are a few factors that FICO says you should consider in order to determine if a hard credit check will make a difference to your credit score.
Will a hard credit check affect your credit score? Look at these factors to find out:
- Number of recently opened accounts
- Number of recent credit inquiries
- Time since recent account openings
- Time since credit inquiries
It’s also worth noting that everyone is legally entitled to one free credit check per year from each of the three major credit reporting agencies (FICO, Experian, TransUnion). But let’s not avoid the truth: if you have several lenders or credit card companies conduct many hard credit checks one after the other, then your credit score will get hurt as a result.
Take a minute to learn about how often you should check your credit score.
How to improve your credit score and fundability
It isn’t the only factor that you should be concerned about when applying for business loans (there are other business loan requirements), but improving your credit score will definitely help to increase your fundability. There are several ways that business owners can go about improving their credit score – we’ll touch on a few just below.
Best ways to improve your credit score:
- Improve your credit utilization
- Keep your first credit card account open
- Schedule automated payments
We expand on those three points in our Guide to Using Credit Cards to Build Credit. Become makes it easier than ever to improve your fundability. Your days of stressing and guessing about how to get funded are over.
With LendingScore™ technology, small business owners have access to exclusive in-depth insights into their business’s financial profile. The LendingScore™ Dashboard helps business owners understand specifically what they need to do in order to up their funding odds and unlock new funding opportunities.
Even after you’ve qualified for and received business financing through Become, your tailored LendingScore™ Dashboard will continue to point you towards optimizing your funding chances even further.
The bottom line
Become is helping to revolutionize the business lending process with cutting-edge innovations in digital technology. With the advantages offered by financial technology, it’s easier than ever for business owners to access small business loans with no credit check. So if you have a low credit score, don’t want to damage your credit score, or are just looking for fast access to business funding, Become can help you get the financing you deserve.
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