Can you have a business bank account with bad credit?

Running a business whilst having bad credit can be especially difficult and most business owners can easily become  concerned about whether or not they will be able to open up a business bank account with bad credit. But, there is hope for those business owners. Having bad credit does not necessarily mean that you will not be able to open up a business bank account. Here, we’ll take a look at just how you can open a business bank account with bad credit. 

What is the relationship between business bank accounts and credit

Most people think that when they need to open up a business account their credit score is the first thing that lenders will look at, however, this is not the case. Your credit score isn’t usually the first thing that is looked at, making opening up a business bank account easier to do. 

The key thing that lenders will be focussing on is the credibility of your business and whether it is legally registered with all the necessary documentation and a Unique Tax Reference Number. 

 

This is not to say, however, that lenders won’t ever perform checks. Some perform soft credit checks, especially if your business needs an account with overdraft protection or credit-related features. These are,  however, not deal-breakers and may not prevent you from opening up your business bank account. 

Why banks might check your credit

There are a few reasons why a bank might perform a business credit check when you’re opening a business bank account:

 

• Overdraft protection: lenders will need to be sure that your business will pay back the money owed, especially when needing overdraft protection. 
• Linked credit products: Lenders may need to perform a business credit check if your bank account is linked to any credit products (business credit cards).
• Previous banking issues: If you’ve had any previous banking issues, for example, unpaid overdraft fees or accounts being closed down due to misuse, they may show up on your credit history. 

Tips for opening a business bank account with bad credit

Having bad credit may make things a bit trickier when applying for a business bank account, but it’s good to know that this is not a complete deal-breaker. So, follow these steps when looking to open up a business bank account with bad credit:

Start with your current bank

If you already have a personal account with a bank, consider appraoching them for a business bank account. 

Consider credit unions or online banks 

Credit unions or online banks may have more flexible requirements when compared to traditional lenders. They may be more willing to work with businesses with bad credit. 

Prepare your documentation 

To make the process more streamlined when applying for a business bank account with bad credit, ensure that you have the necessary documentation at hand (for example, your business license and UTR number). This shows that you're more than willing to be transparent with the lender. 

Explore second-chance accounts 

You may also find it beneficial to look into second-chance accounts. These accounts have been specifically designed for businesses that have had banking issues. It is important to note, though, that these accounts may have higher fees or fewer features on offer. 

Business loans with bad credit

So, what about business loans with bad credit? While the more traditional lenders may make it a little more difficult to obtain a loan with a low credit score, there are still a few other options you can explore. 

Small business loans for bad credit

One option that you could explore is small business loans for bad credit. This option will come with a higher interest rate but will be able to give you the capital you need in order to expand your business. 

Microloans

If you have a smaller business, you may find accessing a microloan more beneficial. This type of loan is often offered by nonprofit organisations or community lenders. The credit requirements for microloans are more lenient. 

Merchant cash advances

Another option that you could explore is a merchant cash advance where a lender gives you a lump sum upfront in exchange for a percentage of your daily credit card sales. Although this option is more easily available to you, the costs involved will be higher. 

Invoice factoring

Invoice factoring is an option that will give you access to immediate cash and this does not rely heavily on your credit score. So, if you have outstanding invoices, you can sell them to a factoring company for cash in return. This option can be more labour-intensive, though. 

How to avoid bad credit

The best step to take to maintain a healthy financial profile is to prepare your business for a credit check. This will help you avoid the negative impacts of bad credit on your business. As you may be aware, a solid credit score will open up many different financial opportunities for you and your business.  

 

Here are some key strategies to ensure your business is ready for a credit check and stays on the right financial path.

Keep your financial records organised

The first step to take is to make sure that your financial records are in order, which includes maintaining up-to-date bookkeeping records, thorough records of all transactions and accurate financial statements. 

 

If your records are in order, it will be easier to demonstrate your business’s financial health and prove that you’re a low-risk borrower. Regularly review your financial statements to catch any discrepancies or areas of concern before they become bigger issues.

Pay bills and debts on time

So, to avoid this you should make sure that you set up automated payments or reminders to help you remember to make your payments. If cash flow is tight, communicate with creditors to negotiate payment terms that work for both parties, rather than letting payments go overdue. 

Monitor your business credit report regularly

You should also make sure that you regularly monitor your business’s credit reports, as you would your personal credit report. By doing this, you will  be able to spot any inaccuracies or fraudulent activity which could also negatively impact your business credit score. You can then address any issues as soon as possible. 

Manage your credit utilisation wisely

The next step to take is to manage your credit utilisation wisely. This means that you should ensure that the ratio of your credit card balances to your credit limit is balanced. High credit utilisation may signal to lenders that your business relies too much on credit. 

 

So, to maintain a good credit score, try and aim to keep your credit utilisation below 30% by using a small portion of your available credit and by paying off your balances regularly instead of carrying high balances on a monthly basis. 

Build strong relationships with creditors and vendors

Developing positive relationships with your creditors and vendors can be beneficial for maintaining good credit. Pay your suppliers on time and, when possible, ahead of schedule. Some vendors report payment history to credit bureaus, which can positively impact your credit score. 

 

Also, having a good relationship with creditors might give you leverage to negotiate better terms or grace periods, further protecting your credit score from any potential dips.

 

Having bad credit can negatively impact your business financially, however, it does not have to be a complete hindrance. You will still be able to open up a business bank account and will still be able to have access to business loans if you need it. 

 

So, yes, you can open a business bank account with bad credit and even find business loans tailored to your situation. With the right approach, your credit score won’t stand in the way of your business ambitions.

Do you need to perform a credit check? Get in touch with Creditserve if you  need to find out more about our different credit check packages at 01992 414222.