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How to Get Business Auto Loans with Bad Credit
Business auto loans can be a challenging proposition, and like any loan, are often more difficult to obtain with a bad credit history. Higher rates and payments as well as stringent qualification requirements are all part of the process but that doesn’t mean it has to be an overwhelming experience. Here are a few tips to consider when applying for a business auto loan with a less than ideal credit history.
The Obstacles of a Bad Credit Loan
Bad credit auto loans are primarily offered by third party sources. When a business owner with poor credit cannot get approved for a loan from a bank or financing entity of a car manufacturer, a third party lender will step in. This can be done through the automobile dealer who will initiate the loan and then pass it off to an outside financing company or originated through a third party lender specializing in bad credit loans. Many of the factors that will result in denial of a loan through conventional lenders are usually low credit score, bankruptcy filing, insufficient income and prior vehicle repossession.
Qualifing for an Auto Loan with Bad Credit
Approval for business auto loans are determined through a similar criteria to that of personal loans and it starts with credit score. Credit companies that analyze risk on personal loans will look at your credit score and base their decision on a number of factors that will help them decide on whether you are a high or low risk for lending. Business credit loan companies make the same determinations but on a much simpler set of criteria, based on the Paydex credit agency. A business credit score ranges from 0 to 100, with an 80 being a very good score. The score is based solely on whether a business makes their payments on time to their creditors. A high score reflects a committed and reliable routine of paying creditors what they are owed.
If a business does not have a satisfactory Paydex score it can result in a denial of loan approval. In this case, going to a bad credit lender will require a number of qualifying criteria and will affect the rates, flexibility and length of loan terms, as well as proof of the profitability and establishment history of the business. Personal guarantees will often be required from any or all of the principals in the business at a percentage of the loan amount.
Secured versus Unsecured Loans
The two most common types of business loans are secured and unsecured and each one carries with it certain expectations and limitations for the life of the loan. Secured loans usually offer up some form of collateral, whether the vehicle itself or some asset of the business itself, it’s a loan that demonstrates the availability of some kind of relief in the event the loan is not paid back as agreed to by the parties involved for the life of the loan. An unsecured loan does not tie any assumption of ownership to property in the event of default, but instead relies more on a higher interest rate because of the larger risk of not being reimbursed the money loaned. Most auto loans will rely on a secured loan because if you default they can just take the car back.
