Bad credit can feel like a door slamming shut. But when it comes to business lending, it's not the whole story.

Lenders look at more than just your credit score. And there are options available to businesses that wouldn't pass a standard bank's checks. This guide explains how it works, what's available and what you can do to give yourself the best chance.

What counts as bad credit?

Bad credit usually means your credit history has something negative on it. That could be:

• Missed or late payments on loans or credit cards
• A County Court Judgment (CCJ) against you or your business
• A previous insolvency or bankruptcy
• Defaulting on a loan
• A very thin credit history, where there simply isn't much to go on

Both your personal credit score and your business credit score can matter to a lender. As a small business owner, the two are often looked at together, especially if your business is relatively new.

How lenders assess your application

A credit score is one input, not the final answer. Most lenders, and almost all specialist business lenders, look at a wider picture.

That includes:

• How long you've been trading
• Your business turnover and whether it's growing
• Your cash flow and whether you can comfortably cover repayments
• What the loan is for and whether it makes sense for the business
• Whether you have any assets that could be used as security

A business with strong, consistent revenue and a clear purpose for the loan can still be a good lending proposition, even with a patchy credit history.

What options are available with bad credit

Specialist business lenders

High street banks tend to have strict credit criteria. Specialist lenders are built to look beyond that. They're often more flexible on credit history and more interested in the overall health of your business.

The trade-off is usually a higher interest rate, which reflects the additional risk the lender is taking on. It's worth comparing rates carefully.

Secured loans

If you have assets, you may be able to use them as security against a loan. This reduces the risk for the lender, which can make them more willing to lend even with a weaker credit profile.

Assets used as security could include business equipment, property or vehicles. Bear in mind that if you can't keep up with repayments, the lender can take the asset.

Invoice finance

If your business sends invoices and waits for customers to pay, invoice finance lets you unlock the value of those unpaid invoices early. The lender advances you a percentage of the invoice value and collects payment from your customer directly.

Because the lending is secured against the invoices rather than your credit history, it's often more accessible to businesses with bad credit.

Merchant cash advances

If your business takes card payments, a merchant cash advance lets you borrow against your future card sales. Repayments come out automatically as a percentage of your daily takings, so they flex with your revenue.

It's a flexible option, but the cost can be higher than a traditional loan. Make sure you understand the total amount you'll repay before you commit.

Guarantor loans

Some lenders will consider a loan if a director or third party is willing to personally guarantee it. That means if the business can't repay, the guarantor is liable. This is a serious commitment and anyone acting as guarantor needs to understand what they're agreeing to.

What to do before you apply

A little preparation can make a real difference to your chances.

• Check your credit reports before you apply. You're entitled to a free report from the main credit reference agencies: Experian, Equifax and TransUnion. Look for any errors and get them corrected.
• Get your financial records in order. Up-to-date accounts, bank statements and a clear picture of your cash flow show lenders you know your business.
• Be clear about what the money is for. Lenders want to understand how the loan will be used and how it will help the business generate the income to repay it.
• Don't make lots of applications at once. Every application leaves a mark on your credit file. Too many in a short space of time can make things worse. Use eligibility checkers where they're available, as these use a soft search that doesn't affect your score.

How to improve your credit over time

If you're not in a rush, taking some time to improve your credit position before applying can open up better options.

• Pay any outstanding debts or arrange payment plans where you can
• Make sure your business is registered at Companies House and that your details are correct
• Register on the electoral roll at your business address if you work from home
• Use a business credit card for small, regular purchases and pay it off in full each month
• Build a relationship with your bank over time — consistent behaviour counts

Credit improvement takes time, but even a few months of clean activity can shift things in the right direction.

Is bad credit business lending right for you?

Borrowing with bad credit often costs more. That's the reality. Before you commit, it's worth working out whether the loan makes financial sense for your business once you factor in the interest rate and any fees.

If the loan will generate enough return to cover the cost and leave you better off, it can absolutely be the right move. If it's going to stretch your cash flow to breaking point, it's worth pausing and thinking about whether there's another way.