Starting a business is exciting, but getting a loan when you have bad credit can feel tough. Don’t worry, though—there are options for funding and best startup business loans around, even if your credit score isn’t perfect. In this guide, we’ll walk you through the best ways to get a loan to start business bad credit, explain what lenders look for, and show you options that can make it possible to launch your business dream.
Best for large business loans
- 3 Months in Business
- $10,000 in Monthly Rev
- Minimum Credit Score 550
4.9
Best for large business loans
- up to $1.5 million
- APR range Not disclosed
- Minimum Credit Score 570
4.7
Best for Small business loans
- Apply in Minutes
- No Hidden fees
- Wide range of Options to choose from
- Get funded in as little as 24 hours*
4.8
- Real-time pre-approvals for those who qualify
- Time in business: 6+ months
- Average repayment terms by loan product
4
Understanding Bad Credit and Business Loans
Bad credit may make some loans harder to get, but knowing what it means can help you find the right solution.
What is a Bad Credit Score?
A credit score is a number that shows lenders how risky it is to lend you money. A bad credit score usually means a score of 600 or less. If you have a poor credit score or your credit history isn’t strong, lenders might be more cautious about approving your application. But don’t worry—there are still ways to the minimum credit score requirement secure funding.
- Good Credit Score: 661-780
- Fair Credit Score: 601-660
- Poor Credit Score: 500-600
How Does Personal Credit Affect Business Loans?
For new businesses, lenders often check your personal credit score because you might not have a business credit score yet. A good personal credit score can improve your chances of getting approved. If your business credit history isn’t perfect, some bad credit business loan and options are still open for you, especially if you meet other eligibility factors.
Getting a Business Loan with Bad Credit
If you’re ready to find a loan, here’s what you need to know.
1. Know Your Eligibility Requirements
Before applying for personal loan, check your personal credit score and, if you have one, your business credit score. Lenders often have minimum credit score requirements for different loan types. Knowing your credit standing can help you target the right business loans for bad you.
- Documentation: Lenders usually ask for tax returns, bank statements, and sometimes even a business plan. Have these ready to improve your chances.
2. Research Options for Bad Credit Business Loans
Not all lenders require perfect credit. Many online lenders or alternative lenders offer loans for people with lower scores. Some even specialize in bad credit business or loans for bad credit or small business loans for specific groups, such as women with poor credit. Let’s look at the types of best business loans that might work for you.
Types of Business Loans for Bad Credit
1. Short-Term Small Business Loans
Short-term small business loans offer a quick way to get a lump sum of cash, which you’ll pay back over a shorter period, typically three to 24 months. These loans are ideal for small business owners who need to cover immediate expenses or make smaller investments. Because short-term loans involve higher monthly payments, they’re best suited for businesses with strong cash flow that can handle the faster repayment schedule. However, because of the shorter duration, these loans may have higher interest rates, making it essential to calculate whether you can keep up with the loan costs and repayments.
2. Lines of Credit
A line of credit provides flexible funding a business bank account you can use as needed, only paying an interest rate on the amount you actually withdraw. This is similar to a credit card but with a larger spending limit. Lines of credit are helpful for businesses with variable expenses since you can access funds when you need them and repay over time. Online lenders often provide easier access to lines of credit for business owners with less-than-perfect credit, so this option can be ideal if your credit score is low but your business cash flow is healthy.
3. Collateralized Loans
Collateralized loans are secured by valuable either business assets or personal assets, like equipment, inventory, or even invoices. By offering collateral, you reduce the lender’s risk, which can improve your chance of approval even with bad credit. These loans can provide large sums with better terms, making them ideal if your business has assets you’re comfortable using as security. However, consider the risk: if you can’t make repayments, the lender can seize the collateral.
4. Term Loans
Term loans provide a lump sum of cash with a set repayment schedule, typically spread over one to five years. These loans often come with fixed interest rates, making it easier to budget. Term loans work well for businesses planning to make larger, long-term investments, like expanding operations or purchasing expensive equipment. Although lenders may prefer borrowers with good credit, some may consider applicants with bad credit if they can provide collateral or demonstrate strong cash flow.
5. Secured Loans
In a secured loan, you pledge assets—like property, equipment, or other valuable assets—as collateral. Because secured loans lower the lender’s risk, they can be easier to qualify for if you have a lower credit score. Secured loans generally offer better interest rates and repayment terms but come with the risk of losing your collateral if your business defaults.
6. Working Capital Loans
Working capital loans are designed to fund daily operational expenses like payroll, rent, and inventory. These loans typically have lower credit score requirements, so they’re accessible to businesses with poor credit or no established business or personal credit history. Working capital loans are often short-term, making them ideal for covering temporary cash flow issues. However, their shorter repayment period and higher interest rates may require careful planning to ensure you can keep up with payments.
7. Equipment Financing
Equipment financing is useful for businesses that need to purchase expensive machinery or vehicles. This loan is secured by the equipment itself, which means lenders are often more willing to work with your business debt than borrowers who have bad credit. With equipment financing, you’ll own the asset once the loan is fully repaid, which makes this a better choice for long-term investments. However, because the equipment acts as the loan amounts and collateral, be sure you’re confident in your ability to make timely repayments.
8. Invoice Factoring
Invoice factoring is a funding solution where you sell unpaid invoices to a third party (the factoring company) in exchange for immediate cash. The factoring invoice financing company then collects the invoice payments directly from your customers. This option works well for businesses with high volumes of outstanding invoices and can be a good fit if your customers are slow to pay but have reliable payment records. Since the loan is secured by your invoices, it’s often accessible to businesses with bad credit.
9. Merchant Cash Advances
A merchant cash advance (MCA) provides a lump sum payment upfront, repaid through a percentage of daily credit card sales. MCAs prioritize a company’s sales performance over its credit score, making them a popular choice for businesses with poor credit but steady sales. MCAs offer quick funding but tend to come with higher costs. The automatic deductions can impact cash flow, so it’s important to weigh the potential strain on daily operations before opting for this option.
Alternative Options for Startups with Bad Credit
1. Online Business Loans
Online lenders can be a great alternative to traditional banks. These lenders often have faster application processes, lower minimum credit score requirements, and more flexible terms. While the interest rate and rates may be higher, many online lenders offer more small business financing options and loans that cater specifically to bad credit borrowers. For businesses with a limited credit history or those needing quick funding, online business loans can be an accessible way to secure financing.
2. Small Business Credit Cards
Small business credit cards allow you to access funds for various business expenses while building your credit over time. Some other small business financing and credit card cards are available to those with bad credit, though they may come with higher interest rates. By making timely payments, you can improve your credit score, which could increase your future loan options. Additionally, many small business credit cards offer perks like cash back or rewards that can benefit your business.
3. Crowdfunding Platforms
Crowdfunding lets you raise money through donations, loans, or equity from people who believe in your business idea. Sites like Kickstarter, GoFundMe, or Indiegogo are popular for startups needing a boost without traditional business financing options. In crowdfunding, you create a campaign explaining your business goals and attract supporters. This option can be advantageous for businesses with unique or community-driven projects, and credit scores are generally less relevant.
4. SBA Loans
The Small Business Administration (SBA) provides loans backed by the government, which means lenders take on less risk. SBA loans often have better terms and lower interest rates, but they do require a thorough application process. While a minimum credit score is generally required, the same SBA loan, may work with applicants with less-than-perfect credit if they have strong business plans, collateral, or other supporting qualifications. SBA loans can be a great option for long-term investments.
5. Peer-to-Peer Lending
Peer-to-peer (P2P) lending connects borrowers directly with investors via online platforms. P2P loans often have flexible credit requirements, and approval may rely more on your business plan than your credit score. This type of financing may come with higher interest rates, but it provides another option for startups with poor credit. P2P lending can be a useful way to access funds quickly while building a relationship with potential investors.
6. Small-Business Grants
Grants are offered by various government agencies, nonprofit organizations, credit unions, and private companies to support small businesses. These funds don’t need to be repaid, so they can be an excellent option for businesses struggling with bad credit. While grant applications can be competitive and time-consuming, successfully obtaining a grant provides your business with “free” money that won’t impact your business line, cash flow or credit score.
Frequently Asked Questions
Can I get a loan to start a business with bad credit?
Online and nonbank lending agencies are able to provide small businesses loans based upon low scores – ideally between 620 and 800. These loans are costly as they come with higher rates pay interest, and fees. Make sure your own business owner is able to deal fully with the potential cost of a debt and take on debt as soon as they become available.
Can I get a business loan with a 500 credit score?
You can get business loans if you have poor business credit scores. That’s because a credit report doesn’t have as big a role to play business financing as an economic condition. Most lenders require a minimum of 500 credit scores and fewer than 330,000 annual revenues.
What Credit Score is Needed for a Start-up Business Loan?
Getting a start-up business loan or a small business loan with a less-than-stellar credit score is possible, but it often comes with challenges. Typically, lenders prefer a credit score of at least 600 or higher for start-up loans. However, some lenders may consider applicants with lower scores if they can demonstrate strong business potential, provide collateral, or have a solid business plan. It’s essential to research and approach lenders who specialize in working with businesses with poor credit scores to increase your chances of approval.
Best for large business loans
- 3 Months in Business
- $10,000 in Monthly Rev
- Minimum Credit Score 550
4.9
Best for large business loans
- up to $1.5 million
- APR range Not disclosed
- Minimum Credit Score 570
4.7
Best for Small business loans
- Apply in Minutes
- No Hidden fees
- Wide range of Options to choose from
- Get funded in as little as 24 hours*
4.8
- Real-time pre-approvals for those who qualify
- Time in business: 6+ months
- Average repayment terms by loan product
4
What is the Easiest Business Loan to Get?
For those with bad credit, the easiest small business loan amount to obtain is often a merchant cash advance or a short-term loan. These options focus more on your business’s cash flow and sales performance rather than your credit score. Online lenders also provide accessible small business loan options now, often with more flexible credit requirements and faster approval processes. While these loans may have higher interest rates, they offer a viable solution for businesses needing quick funding without stringent credit score demands.
