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How To Get A Business Loan With Bad Credit. Photo KnowInsiders

Bad credit business loans are available from alternative sources, like online or nonprofit lenders. If your credit isn’t great, getting a loan from a bank or credit union may be difficult.

Borrowers with poor credit are considered riskier, so available loans will likely be more expensive as a result. If you need a bad credit business loan, shop around to get the best terms possible and make sure the payments will be manageable.

What are business loans?

Business loans are lending agreements made between business owners and banks or private lenders. Businesses need capital, either to fund operations or simply to start themselves up and begin turning a profit.

Banks and lenders are willing to give them the money in advance, so long as they pay it back on an agreed-upon schedule, with interest.

What is Considered Bad Credit?

What is considered bad credit for one lender might be considered OK credit for another. With that in mind, it might be easier to describe what good credit it and work back from there.

800-850 (Exceptional): With a score above 800 borrowers will be able to choose the credit options that are optimal for their situations, often with the lender they choose.

740-799 (Very Good): If your credit score falls within this range you are considered a low-risk borrower. A borrower with this credit score will be able to pick and choose the loan that makes the most sense for their business use case.

670-739 (Good): This is considered a good score and many in the U.S. fall within this range. A borrower with this type of score can expect to see more options and more approvals.

580-669 (Fair): This is considered a moderate-risk score. A small business loan is very possible, but will likely not come with the best interest rates. Most traditional lenders won’t offer a small business loan to borrowers in this category.

500-579 (Poor): There is some financing available for borrowers with this type of credit score, but it’s considered a high-risk score and will likely come with fewer options and higher interest rates.

Below 500 (Very Poor): With this credit score it is unlikely a business owner will qualify for a business loan.

READ MORE: How To Start A Small Business From Best Ideas to Plan

Why your credit score matters

Lenders, use your credit score as a metric for measuring risk. The lower your score is, the riskier you and your business appear.

Traditional lenders (banks and credit unions) generally look for a minimum credit score of 650, with many requiring a higher score, before approving your application. This isn’t a hard and fast rule, but it at least provides a benchmark excluding all other factors.

For businesses that have been operating for less than a year, your personal credit score will be the only thing considered. And for better or worse, your personal credit score is typically tied to your business, even after you’ve established a business credit profile. This means both credit scores will be considered in a loan application if you’ve been in business for more than a year, with specific lenders weighing one profile more heavily than another.

Getting a loan when you have bad credit or no credit history can be tough. Like most financial products, borrowers have to submit an application listing their income information and agree to a credit check before getting approved for a loan. Lenders prefer to work with customers who have a proven track record of paying their bills on time and earning enough money to stay on top of their debt while honoring all terms and agreements.

What types of business loans are available for bad credit?

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For those with bad credit, the door to getting funded isn’t completely closed. But every financing option is different, and it will take some research on your end to find the best fit for you. Here are the most common lending options you’ll come across to get you started.

Traditional bank loans

This option is less likely to work out for those with bad credit because traditional lenders have limits on who they will finance. That said, it isn’t impossible. Your interest rate will however be higher than a standard rate and more collateral will probably be required of you than a traditional recipient.

If you think you may still qualify, take a look at some of the loan options offered by the SBA.


A microloan is similar to a traditional bank loan, but they often come from alternative lenders like credit unions.

A microloan tends to be easier to get for those with subpar credit because the loan amounts, as the name indicates, are small, typically fifty thousand dollars or less. Because of this, the credit requirements for these loans are also lower.

If this amount of funding suits your needs, this is a great option. The SBA has a microloan program, and there are several alternative lending options available such as Kiva and Accion.

Fintech lenders

The number of digital and financial technology lenders seems to grow every single day. And for those with bad credit, this is absolutely a good thing. These lenders typically require very different requirements to apply and look at your business track-record and financials more than your credit.

Before applying, you’ll want to check out a lenders track record, services, application requirements, and customer support to see what you’re getting into. You may need to stay within their ecosystem to get financing with better loan terms and higher funding options in the future.

Merchant cash advance

Also known as a business cash advance, this option is only applicable to those having cash flow problems who would need ten thousand dollars or less. Cash advances usually have very high-interest rates meaning that you will almost certainly pay more in the long run than the initial loan, especially if you miss a payment. Be certain you can repay on time before going this route.

Business credit card

If you can secure a credit card in your company name and make purchases and on-time payments, you can get financing and start building good business credit at the same time. Of course, the credit limit, interest rate, and terms of payment will vary, and each bank or credit union will have eligibility requirements, so this option will not work for everyone.

Home equity line of credit

Otherwise known as “betting the farm,” it goes without saying that this is an extremely high-risk option, and only applies to those who own houses. You put up your house as collateral to secure a bank loan.

Revenue-based loan

This type of loan has a niche pool of recipients: you must have a credit score of over 550, your company must make more than a hundred thousand a year in sales, and the loan amount can not exceed ten percent of your revenue. You can receive this type of loan in as little as a week. If you fit these criteria, you can learn more here.

Friends and family

If you do have people in your life who could invest in your business, getting a loan from friends and family is sometimes an option. Of course, for mHow To Get A Small Business Loan: Best Tips for Startup Success too high, or their circle of friends and family is small or possibly strapped for money themselves. Your friends and family may think it’s too risky because of your bad credit as well.

Read More: How To Get A Small Business Loan: Best Tips for Startup Success

What Are the Best Bad Credit Small-Business Loans of 2021?

BlueVine: Best for bad credit

Biz2Credit: Best for loan options

OnDeck: Best for short loan terms

Rapid Finance: Best for product availability

How Can You Choose the Best Bad Credit Business Loan?

When choosing a lender for your small business, pay close attention to the lender's:

  • Loan options.
  • Eligibility requirements.
  • Costs.
  • Customer service.

Keeping these factors in mind will help you find a lender with a better chance of approving your loan and offering you the best possible terms and costs.

Loan Options

Look for a lender that provides the type of loan you need, such as a business line of credit, invoice financing or term loan.

Also, check that loan limits and terms are in line with your needs. If you require a $250,000 loan with a seven-year repayment term, you won't want to apply with a lender that makes only small, short-term business loans.

Eligibility Requirements

Applying for a loan that you don't qualify for doesn't make sense. Find out what a lender expects as a baseline for approval before you apply.

Ask about these and other factors:

  • Minimum personal credit score.
  • Minimum years in business.
  • Minimum annual revenue.


Seek a lender with the lowest costs, including:

  • Annual percentage rate.
  • Down payment.
  • Factor rate.
  • Origination fee.
  • Underwriting fees.
  • Closing costs.
  • Additional fees.

How to get a business loan with bad credit

“Bad credit” refers to a FICO credit score between 300 – 629, but even if you fall within this range, that doesn’t mean you’re ineligible for a loan. As you take steps to improve your credit, you can still look into funding that may be available to you right now. Follow these steps to improve your chances of getting approved:

1. Understand your credit position

You’ve likely already done this as you take steps to improve your score, but it’s always beneficial to know exactly where you stand. You’re allowed one free credit report per year, get yours, look into both your personal and business credit score if applicable

If you’ve already requested your annual report, there are supplementary scores that can give you an idea of what your current standing is. Just be sure to avoid any options that require payment information or state that it will run a hard credit inquiry.

2. Provide collateral

To help mitigate risk for the lender, you can offer up collateral against your loan. Common forms of collateral include:

Unpaid customer invoices

Equipment financing

Personal assets

Cash or savings accounts

Investment accounts

However, this does somewhat increase risk on your end, especially if your business takes a downward turn for a prolonged period of time. So only offer up collateral you’re comfortable losing if things go bad and you need to pay off debts.

3. Add a co-signer

Similar to adding on stable partners, adding a co-signer means they are willing to take on partial responsibility for the loan. Typically you want a co-signer to have good credit and the ability to cover payments if you’re unable to keep up with them.

4. Review eligibility requirements

Every type of financing has its own set of eligibility requirements you’ll need to meet. While a traditional lender will focus on long-term business history and personal credit, alternative lenders will likely require more accessible criteria to determine your creditworthiness.

Do your research and find a lender that fits your needs. Look for options that cater to the strengths of your business to improve your chances of being approved.

5. Apply for a lower amount of funding

Asking for the right amount of funding, that’s supported by your business plan and current financials, will increase your chances of getting a loan. It’ll also make it easier for you to repay. You don’t want to saddle yourself with more debt than necessary, and you certainly don’t want to wind up with a large debt you can’t afford to repay.

Before applying, revisit your business plan, P&L statement, balance sheet, and financial forecasts. Determine if there are any areas you can minimize overhead, cut variable costs, or bring in additional revenue. Run multiple forecasts for best, worst, and actual scenarios to determine how much of a loan you need and can afford if things turn south.

Then apply for that realistic amount. If things go well and you need more to grow, you’re in a better position to pay off your current loan and apply for more financing.

What is considered a bad credit score?

Here is how lenders classify “fair” and “poor” credit scores:

FICO Score

Very poor: 300 to 579

Fair: 580 to 669

Good: 670 to 739

Very good: 740 to 799

Excellent: 800 to 850


Very poor: 300 to 499

Poor: 500 to 600

Fair: 601 to 660

Good: 661 to 780

Excellent: 781 to 850

Scores lower than 670, and certainly scores lower than 600, will most likely disqualify you for the most affordable personal loans. But if you’re in a pinch, it’s not all-out impossible to get a loan with a credit score in the high 500s or low 600s.

What to do if you can’t get approved for a business loan

Although there are options available to borrowers with a poor credit score, not every loan application will be approved. For those borrowers who can’t get a business because of their poor personal credit score, taking actions to start improving your score today is where they should focus their attention.

There is no short-cut to a strong personal score, but there is good news. Over time, consistently working on your personal score will help you improve your score. Taking these steps will put your score on the path to recovery:

Monitor your credit: It’s human nature to impact the things we pay the most attention to—and that includes your personal credit scores. Fortunately, it’s possible to monitor your score with Nav or a handful of other platforms for free. Alternatively you can pay for services available from the major credit bureaus to monitor your credit. This is also important to ensure the information in your credit report is accurate. All the credit bureaus have a process in place to correct inaccurate or mistaken information.

Reduce your monthly credit obligation: A big part of how your score is calculated is the ratio between the amount of credit you have available and the amount of credit you use. Keeping your credit usage below 20-30% should be the goal. If you have three credit cards and currently pay only the minimum amount due on all three, pick one, start paying more than the minimum until you have that card paid off. Then start on the next card. The more below 20-30% you can go, the better.

Make each and every loan or credit card payment on time: The single most impactful thing you can do to improve your score is to make your periodic payments on time. It won’t change your score overnight, but creating a track record of timely payments will improve your score.

What’s the difference between secured vs. unsecured loans?

A secured loan is a loan backed by collateral. The most common types of secured loans are mortgages and car loans, where the collateral is your home or car. But really, collateral can be any kind of financial asset you own. And if you don’t pay back your loan, the bank can seize your collateral as payment. A repossession stays on your credit report for up to seven years.

An unsecured loan requires no collateral, though you’re still charged interest and sometimes fees. Student loans, personal loans and credit cards are all example of unsecured loans.

Since there’s no collateral, financial institutions give out unsecured loans based in large part on your credit score, income and history of repaying past debts. For this reason, unsecured loans may have higher interest rates (but not always) than a secured loan.

Top US companies offering the best loans to people with bad credit

Avant: Best personal loan

Interest rates: 9.95% to 35.99%

Minimum credit score: 580

Minimum loan amount: $2,000

Why it stands out: While many other lenders only offer personal loans to those with the best credit scores, Avant offers personal loans to those with a minimum credit score of 600. Avant makes them available to many more borrowers, even those with lower credit scores. The online lender offers personal loans up to $35,000.

What to watch out for: An administrative fee of 4.75% adds to the cost of borrowing. In general, personal loans have higher interest rates compared to other types of borrowing. This is true for any company offering personal loans, not just Avant.

LendingClub: This popular online peer-to-peer lender has APRs similar to Avant, but has no clearly defined credit score minimum and potentially a higher origination fee ranging from 2% to 6%.

OneMain Financial

Interest rates start at 18% through this lender, making it an expensive option.


This online lender's origination fees can be as high as 8%.


Interest rates starting at 9.99% combined with fees up to 6% make Avant's slightly lower interest rate and lower origination fees a better option.

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