The increasing rate climate and soaring inflation is placing cost pressures on many businesses. But for those in bad credit situations the prospects can be even more dire and concerning. It is widely accepted that interest rates offered on bad credit business finance would be higher than those for businesses with good credit ratings.
Inflation is the key driver of the RBA’s rate decisions over recent months and with inflation rising by another 1.8% in the June quarter to 6.1%, more rises are certain. While finance rates were coming off a low base having enjoyed the record low of 0.1% cash rate since November 2020, for bad credit finance, the rate increases are on top of a higher base. A cost which the business must absorb into operating costs or pass on to customers with higher prices. Options which can place the business in a vulnerable position.
Bad credit finance is not offered by all business lenders such as banks. Businesses requiring this type of finance for new trucks, motor vehicles, equipment or commercial loans such as overdrafts, can benefit significantly from using our service offering. A service which provides each customer with their own consultant to focus purely on their needs and with access to a vast selection of lenders including those that will consider bad credit finance applications.
Bad Credit Finance
Bad credit finance is not in itself a loan or finance type or category. The term is used to describe the business applying for the finance. Businesses with a poor, less than good or bad credit rating. The rating may arise from a range of scenarios such as defaulting on loans, continually missing payments to suppliers, bankruptcy of the business or one of the directors or through management processes.
The scenario as to why the business has a bad credit rating can be relevant when applying for finance. Lenders will be interested in the circumstances and depending on the detail, may result in a better outcome.
Owner-operators and sole traders may find themselves in a bad credit situation as a result of their personal financial situation. The credit profile of the owners of sole traderships and SMEs can reflect on the business. Maintaining a good business and personal credit profile can be important to the finance prospects of the business.
Bad credit is differentiated from businesses requiring Low Doc and No Doc Finance. Businesses in that situation may have quite a good credit profile, but lack the full documentation to complete a business finance application form.
Sourcing Bad Credit Finance
Business owners seeking bad credit finance can either approach the process themselves or seek the professional assistance of a broker-style lender such as ourselves. We see significant benefits in using our style of services. In particular, having a professional finance expert handling the sourcing and negotiations on your behalf and especially opening access to lenders that are open to considering bad credit finance applications.
Not all lenders do offer bad credit finance and business owners that choose to handle the process on their own, may risk not being able to source an offer or being offered an exorbitantly priced loan. The loan conditions are particularly important to consider closely with bad credit finance.
While most applicants will be prepared to be offered a higher interest rate loan, not all may be prepared for the additional conditions that lenders may place or request on the loan.
These can include additional property or guarantees to be put up as security against the finance. This would be additional to the security provided through say an asset such as the truck, equipment or vehicle being financed.
Other conditions may apply around how much lenders will approve the loan. The business may be seeking no deposit finance which may not be approved by the lenders. In such instances, the business would need to pay a deposit to the seller to reduce the total loan amount requested.
When an application is approved for bad credit finance, the business can select which is the most appropriate type of finance to work with their business structure and accounting method.
For asset acquisitions, our finance options include:-
Once finance is approved and arranged, it would be expected that the business would be eligible for the relevant tax deductions and measures available at that time, for that finance product and within ATO eligibility criteria. Currently, that includes temporary full expensing which is best suited to Chattel Mortgage asset finance.
Positive outcomes are possible for bad credit finance customers even when rates are on the rise. Businesses can contribute to a better outcome by having quality documents to support and complete the finance application and by having a clear view of their objectives and requirements to fully brief our consultants.
Contact Business Finance on 1300 000 033 to discuss bad credit business finance.
DISCLAIMER: THE SPECIFIC PURPOSE IN PROVIDING THIS ARTICLE IS FOR GENERAL INFORMATION ONLY. IT IS NOT INTENDED AS THE SOLE SOURCE OF FINANCIAL INFORMATION ON WHICH TO MAKE BUSINESS FINANCE DECISIONS. BUSINESS OWNERS WHO REQUIRE ADVICE OR GUIDANCE AROUND THEIR SPECIFIC FINANCIAL CIRCUMSTANCES ARE RECOMMENDED TO CONSULT WITH AN ADVISOR OR ACCOUNTANT. NO LIABILITY IS ACCEPTED IN REGARD TO ANY MISREPRESENTATIONS OR ANY ERRORS RE ANY DATA, SPECIFICS, POLICIES AND OTHER INFORMATION AS SOURCED FROM OTHERS.