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It may not seem fair, but your personal credit score can make or break your business endeavors, especially if you plan on applying for advance funding.

Even if your business idea is revolutionary, unfortunately, a bad personal or business credit score can keep you from playing the game altogether. To receive funding and avoid getting trapped in a corner financially, you will need to build (or rebuild, as the case may be) and maintain the best credit score you possibly can.

It's not always possible to get a business loan with bad credit, especially when you request one from a traditional lender. However, bad credit business loans may be available if you know where to look. In this guide, we’ll help you understand where you fall on the credit score scale, what your options are, and how to improve your credit in the hopes that you will be able to get that small business loan you’ve been searching for.

What is  Bad Credit?

If you are a small business owner and you want to get a loan, the chances are that loan providers will check your business credit score and your personal credit score.

Understanding the difference between these two terms can be the first step toward finding a small business loan for bad credit.

What is Bad Business Credit?

Man contemplating the significance of different credit scores.

According to the Dun and Bradstreet PAYDEX score that ranges from 0 to 100, a score below 49 is considered bad. A bad credit score usually indicates that the company has a history of late payments and may have possibly declared bankruptcy at some point.

The three major business credit scoring firms that calculate business credit scores are Equifax, Experian, and Dun and Bradstreet. To determine a business's credit score, the credit bureaus take six factors into consideration:

  • Credit history with lenders and suppliers
  • Credit obligations
  • Legal filings
  • Years in operation
  • Type and size of the business
  • Repayment performance

What is Bad Personal Credit?

A loan provider may also look at your personal credit score when deciding whether to loan you money for your company. Personal scores range between 0 and 850.

According to FICO statistics, only about 1.6% of the U.S. population with a credit score has that coveted perfect score of 850. For those with perfect histories, finding funding may be no trouble at all. Most people, however, have at least a few dings on their credit histories.

According to the FICO scoring model, a score below 579 is considered a bad score. Credit scores are often calculated by the three major credit bureaus: Equifax, Experian, and TransUnion. To determine a person's credit score, the credit bureaus take five main factors into consideration:

  • The number of accounts the person holds
  • The type of accounts that they have
  • Used and available credit
  • The length of the person's credit history
  • Payment history

Each scoring model weighs these five factors differently. However, payment history is usually the largest factor.

Many banking institutions refuse to work with bad credit consumers, fearing that they will be financially irresponsible in the future too.

How to Get a Business Loan with Bad Credit

Small business owners with bad credit may still qualify for funding. An alternative lender may put more weight on factors other than your credit score. Your revenue history and time in business may be more important. This is good news because it means that you have more opportunities to qualify for funding even if your personal or business credit is lacking. Alternative lenders just want to be sure you will pay them back. If you can demonstrate that, they may be willing to work with you even if traditional lenders won’t.

Consider the following steps to improve your chances of getting a business loan with bad credit:

Improve Your Personal Credit Score

Improving your personal credit score may increase your chances of getting a business loan. You may be able to improve your personal credit by dealing with delinquencies, making on-time payments, paying down balances, and avoiding new accounts.

Build Your Business Credit Score

Building your business credit score is like improving your personal credit score. Catch up on late payments, pay your vendors on time, and improve your credit history by getting a business credit card or line of credit.

Write a Solid Business Plan

A solid business plan is crucial for convincing the lender to grant you money. Your business plan must demonstrate that your business has strong management, experience, and an in-depth understanding of the marketplace. Your plan must also show relevant financial information that reflects your ability to pay back the loan. It must integrate budgets, forecasts, competition, sales channels, and marketing.

Why Your Credit Scores Matter

As mentioned previously, your personal credit score and your business credit score may factor in whether you get a small business loan. Your credit scores serve as risk assessment data points to determine your creditworthiness and reliability in paying back your debts. Moreover, having good credit scores can also help you get better terms from the lender. Your credit report can also affect other aspects of your business, such as finding an office space to lease.

What Lenders Care About

Although alternative lenders may be more flexible, they may still consider the following factors:

Annual revenue and cash flow: Lenders tend to look at a business’s annual income and cash flow because those factors can indicate financial reliability and the ability to pay back the loan. If you can prove that your company makes enough money to make timely payments, you may increase your chances of qualifying for a loan.

Outstanding debt: If you already have a business loan, it may be challenging to qualify for another. However, you may find some lenders that won’t consider your outstanding debt an issue and approve you for a loan, especially if you demonstrate your ability to repay the loan.

Credit history: Lenders may review your credit history to see if you have ever declared bankruptcy or filed for foreclosure. However, do not fret if that is the case. You may still find alternative lenders who are willing to work with you.

Business plan: Lenders may be interested in reviewing your business plan to understand your situation, how you intend to achieve your goals and the amount of funding you need.

Collateral: Collateral may increase your chances of getting a loan. For instance, a secured business loan with bad credit can decrease the risk on the lender’s part. The lender can legally gain possession of the collateral if you default on the loan.

What to Pay Attention to Before Applying for a Business Loan

Before applying for a business loan, familiarize yourself with the paperwork the loan officer may require, understand that your credit score may be negatively affected, and know that consistent cash flow might help you get the loan.

Gather the Required Paperwork

Before searching for the best small business loans for bad credit, consider gathering all the necessary paperwork to save time during the application process. When searching for bad credit financing, most lenders ask for the following documents:

  • Business licenses and permits
  • Employee identification numbers
  • Income and bank statements
  • Balance sheet
  • Personal and business tax returns

Some loan officers may also ask for additional paperwork on a case-by-case basis. Sometimes, alternative lenders may only require bank statements.

Create a Business Plan

A solid business plan can play a critical role in getting approved for a business loan. A business plan assesses the feasibility of your venture, analyzes your market, competition, target customers, and forecasts your company’s needs. In addition, a well-written business plan attracts investors, talent, and business partners. Your business plan doesn’t have to be long, but make sure to review and update it regularly as you progress and reach milestones.

Risk of Hard Credit Inquiry

Banks perform a hard credit inquiry to check your credit score when getting a small business loan. This can impact your credit score negatively and lower your score even more. Lenders also perform hard inquiries to check your credit history, payment history, and outstanding loans.

Consistent Cash Flow

Loan officers may prefer to lend money to a business with consistent cash flow to ensure enough revenue to pay them back. Therefore, higher sales and revenue can signal a higher chance of qualifying for a business loan.

Realistic Expectations

People with bad credit tend to have fewer options than those with a good credit score. You may have difficulty qualifying for a loan because of your bad credit history. Or, if qualified, you may have to pay higher interest fees and a higher deposit.

The Best Bad Credit Business Loans

If you have bad credit and need money to finance your business, you may be able to qualify for bad credit business loans. As the name suggests, bad credit business loans are sometimes options for business owners with bad credit.

Here are the best bad credit business loans that may help you get financing:

SBA Loans

The SBA works with a group of lenders that provide loans to small businesses. Business owners with low credit scores may be able to apply for SBA loans.

Business owners can request amounts up to $5.5 million. Small business owners can use an SBA loan to fund a variety of business purposes, such as addressing a gap in working capital or debt refinancing.

Borrowers may pay back their debt in equal monthly payments over the course of five to 25 years. The interest rates depend on the lender and the amount borrowed. Usually, the SBA asks business owners to offer their company's assets as collateral. However, if the collateral isn't available, that may not cause your loan application to get rejected.

A provider may consider the following before making a loan offer:

  • Your ability to make on-time payments
  • Whether your business is profitable
  • If you have enough equity

Accounts Receivable Financing

Accounts receivable financing is an excellent option for those with bad credit. That's because the lender collects the money from your clients and not from you. Therefore, if your clients have a good credit history and are known for making on-time payments, you may receive a loan even if you have a bad score.

Accounts receivable financing allows the company to access their outstanding capital that is tied up in unpaid invoices. The lender will advance the company with the outstanding capital and charge a monthly fee. However, the clients may need to be businesses or government organizations to qualify for accounts receivable financing.

Invoice financing companies can collect your customers' unpaid invoices and advance up to 90% of the accounts receivables' value.

Business Line of Credit

A business line of credit is like a credit card. Consumers using this product access the predetermined amount of funds and pay interest on the amount borrowed. They can use the funds to make a business purchase.

Many lenders may ask an applicant with bad credit to secure their business line of credit. In this case, they can use their assets as collateral. If they fail to pay back their line of credit, the lender will gain possession of the collateral. On the bright side, a secured business line of credit may carry lower interest rates.

Equipment Financing

If you specifically want to borrow money to finance new business equipment, consider equipment financing. Many equipment financing companies work with all credit types as long as you demonstrate that your business makes a good profit.

Some lenders offer secured and unsecured business loan options and some may require a security deposit. Consumers may use their equipment or another asset to secure the loan.

Most equipment financing lenders allow their borrowers to purchase from the vendor of their choice. The borrowed amount is paid in installments in up to 10 years, depending on the purchase.

Merchant Cash Advance

Merchant cash advance companies are more interested in a company's revenue than its credit score. Lenders give the borrower a lump sum of cash in exchange for a percentage of future sales.

The lender can take a share from the borrower's bank account by setting automated withdrawals until the debt is paid. The merchant cash advance company may take a percentage from the borrower's credit card receipts and provide business owners an advance on their credit card receivables.

Main Advantages

Small business owners discussing their finances with a financial planner.

Bad credit loans may be very beneficial when going through challenging financial situations. It may help small entrepreneurs generate cash flow and get their business going. Below are the five main advantages of taking out small business loans for bad credit.

Improve Your Credit

If you are working with alternative lenders that report to business credit bureaus, you have the opportunity to improve your credit score by making timely payments. By managing your debt responsibly today, you can improve your credit score and trustworthiness for when you need a loan again in the future.

Borrow Larger Amounts of Money

When applying for a bad credit business loan, you may require more than $100,000. If you demonstrate that you have enough income to cover your monthly payments on time, the loan provider may let you borrow a larger amount.

Receive Fast Funding

If you find yourself and your business in a difficult financial situation and need funding fast, alternative lenders work relatively quicker than traditional lenders. Lenders may grant their applicants funding in up to seven days. Also, alternative lenders claim that their approval rates are higher than traditional lenders.

Find More Options

Some alternative lenders don't impose restrictions on how and where you can spend the borrowed amount. Borrowers may use the funds to expand a business, finance working capital, refinance debt, increase cash flow, etc.

Apply Online

Alternative lenders may offer the option to apply for small and startup business loans for bad credit online. Consumers must only visit the lending company's website and fill out the application form. In these situations, the consumer can submit a loan application any time of the day or night.


When traditional lenders turn their back on you because of your bad credit score, alternative lenders may help you. However, there's a small price to pay. Below are five disadvantages of taking out a bad credit business loan.

High-Interest Rates

When you have bad credit, getting a loan with low-interest rates is pretty challenging. Lenders see you as a risky borrower because of your troubled payment history. To protect themselves and compensate for that risk, lenders often charge high-interest rates from borrowers with low or no credit scores.

Additional Fees

When applying, you may have to pay additional fees such as origination fees and late payment fees. Before signing the loan, ask your loan provider about all existing costs and review all paperwork.

Recurrent Payments

The lender may set shorter repayment terms to minimize the likelihood of default. Ensure you consider the shorter payment periods to avoid overdraft and late payment fees

Securing Your Loan

To get approved for a bad credit loan, lenders may ask you to secure the loan with collateral. A secured loan may include lower interest rates, but if the borrower defaults on a secured loan, the lender may repossess the collateral.

Bad Faith Lending

When searching for a bad credit business loan provider, you may come across lenders working illegally. Make sure that the lender you are going to work with is legitimate and has a lending license. Also, illegal lenders may charge exorbitant interest rates, pressure you to borrow more money than you can pay back, and trick you into a spiral of debt to benefit from the interest rates and late payment fees.

What if I'm Denied Credit?

Man holding a small bag of money with one hand and using his other hand to indicate that the money is not available.

If you are declined after requesting funding, then you should consider the following tips for improving your business credit score:

Make On-Time Payments

Payment history plays a significant role in determining your credit score. That's why the first step toward better credit is paying your existing debts on time. If you continue to make late payments, you may damage your credit score even more. If it is challenging for you to make on-time payments, ask your lender if you can have a new repayment schedule.

Pay Before the Due Date

If you can make on-time payments without any trouble, consider paying back your bills before they are due. Early repayments may help you to pay less in interest in the long run.

Reduce Existing Debt

It is a good idea to clear out any outstanding balance you may have to improve your credit score. Consider paying off any credit card debt, an unpaid bill to a vendor, or any other type of debt you may have.

Work with Clients that Report to the Credit Bureaus

Not all companies and suppliers report payments to the credit bureaus. Consider working with those that report your timely payments to the bureaus. This way, your payment history will have an impact on your credit score.

Consider a Microloan

A microloan is designed to cover expenses up to $50,000. These loans are offered by SBA-approved intermediaries and can be a great source of financing, especially for local businesses denied other forms of credit. Moreover, a microloan should carry relatively low-interest rates compared to options from alternative lenders, making it more attractive for small businesses in need of small capital. 

Use a Small Business Credit Card

If you have a small business credit card for your business, make timely or early payments every month. Also, ensure that the credit card company reports your payments to a credit card bureau. You can also benefit from the rewards or perks that most small business credit card companies provide.

Bad credit business loans can help companies otherwise unable to borrow money find equal footing with competitors. Otherwise, these businesses will always be at a disadvantage.

Frequently Asked Questions

  • Each lender will have its own credit score requirement. Typically, a score of at least 600 is required to secure a business loan. However, some lenders may consider business revenue and profitability when determining eligibility.

  • Since many lenders check your personal credit when applying for a business loan, your score may temporarily drop. As with all hard inquiries, you score may lower by a few points.

  • Unfortunately, no. Most lenders conduct a thorough credit and finance check before determining your eligibility for a business loan. Beware of lenders advertising no credit check business loans. These financers may be involved in predatory lending practices.

  • If you have damaged credit, some lenders may require collateral to secure the loan. Secured business loans protect the lender from potential defaults. In most cases, the collateral will include the business, property, or equipment. Keep in mind that in the event of a default, the lender may repossess the collateral backing the secured business loan.

  • If you have damaged credit, some lenders may require collateral to secure the loan. Secured business loans protect the lender from potential defaults. In most cases, the collateral will include the business, property, or equipment. Keep in mind that in the event of a default, the lender may repossess the collateral backing the secured business loan.