A closer look at the best business loans for bad credit
Best overall for bad credit business loans
Can be a good option if:
May not be a fit if:
You have a personal credit score of at least
570
and/or at least
6
months in business.
You don’t have collateral to secure a loan (or don’t want to risk your assets).
You want a discount for prepaying your loan.
You want a repayment term longer than 18 months.
Your monthly revenue is less than $20,000.
You want to build business credit.
Fora Financial is an online lender that has flexible qualification requirements, making it a good option for startups and borrowers with bad credit. To qualify for a loan, you’ll need a minimum credit score of
570
and at least
6
months in business. Fora also doesn’t require physical collateral, which can be helpful if your business doesn’t have significant assets to offer as security.
Can be a good option if:
May not be a fit if:
You have a personal credit score in the 500s.
You have less than a year in business.
You have strong revenue from debit and credit card sales.
You want prepayment discounts for repaying early.
You can qualify for a merchant cash advance alternative.
You want to build business credit.
You want to repay funding over an extended period of time.
Expansion Capital Group offers fast access to working capital. You can fill out a simple form and receive a quote within 24 hours. Once approved, you can get funding in just two business days. ECG’s merchant cash advance can be a good option for businesses that have strong incoming revenue from debit and credit card sales. Like most MCA providers, however, ECG charges interest as a factor rate, which can be expensive. You’ll want to translate your costs into an APR and compare multiple options to ensure this product is a fit for your business.
Best for low interest rates
Can be a good option if:
May not be a fit if:
You want low interest rates on a bad credit business loan.
You’re looking for repayment terms of one year or longer.
You’re a traditionally underserved business (e.g. startups, those located in low-income areas).
You want to build a relationship with a lender that offers business training and other resources.
You don’t have collateral to secure your loan (or don’t want to put your assets at risk).
You need access to capital within a few days.
You’re looking for more than $50,000 in financing.
Unlike other SBA loans, SBA microloans are issued by participating intermediaries, such as nonprofit organizations or community lenders. Although these lenders are held to some SBA loan requirements, they have more flexibility with their eligibility criteria. Many SBA microlenders offer loans to traditionally underserved borrowers, including those with limited or bad credit. And with interest rates typically ranging from
8
% to
13
%, SBA microloans can be more affordable than other bad credit loan options.
Can be a good option if:
May not be a fit if:
You need fast access to working capital.
You have less than one year in business.
You don’t have collateral to secure a loan (or don’t want to risk your assets).
You need more than $100,000 in financing.
You don’t want to pay a draw fee.
You want to build business credit.
Headway Capital is an online lender that offers a simple application process and flexible requirements. You can find out if you’re eligible for a business line of credit in just minutes. After you’ve been approved, you can receive funds as quickly as the next business day. To qualify, you’ll only need a credit score of
625
,
6
months in business and $50,000 in annual revenue.
Best for prepayment discounts
Can be a good option if:
May not be a fit if:
You have less than one year in business.
You don’t have collateral to secure a loan (or don’t want to risk your assets).
You want a discount for prepaying your loan.
Your monthly sales are less than $20,000.
You would prefer a monthly repayment schedule.
National Funding is a private business lender that offers unsecured, short-term loans — meaning you don’t have to provide physical collateral upfront. National Funding also offers a payoff discount if you repay your loan early. These loans can be a good option for borrowers who have a credit score of
600
or higher and at least
6
months in business.
Best for short-term loans
Can be a good option if:
May not be a fit if:
You need funding for a specific business purpose, such as purchasing equipment, buying inventory or expanding your location.
You want access to capital (up to $250,000) within a few days.
You want to build business credit.
OnDeck’s short-term business loan is available in amounts up to $250,000 with repayment terms up to
24
months. This product can be a good choice for specific, one-time investments in your business. Although OnDeck requires daily or weekly repayment, payments are fixed and don’t change over the course of your loan.
Can be a good option if:
May not be a fit if:
You’re looking to finance or lease essential business equipment.
You want flexible repayment options (e.g. monthly, quarterly, semi-annually).
You have a credit score lower than 600.
You want competitive interest rates on fast equipment financing.
You’re a new business and/or have low revenue.
You need an equipment loan of more than $250,000.
Triton Capital can provide equipment loans of up to $250,000 with repayment terms ranging from
12
to
60
months. Because the equipment you purchase serves as collateral on the loan, the lender can work with borrowers who have a minimum credit score of
575
. You should, however, have at least
24
months in business and annual revenue of $150,000. Triton Capital also doesn’t require a personal guarantee, which means your personal assets won’t be at risk with their equipment financing.
Can be a good option if:
May not be a fit if:
You have less than six months in business.
You need capital within a few business days.
You don’t want to pay draw or account maintenance fees.
You want to build business credit.
You’re looking for a monthly repayment schedule.
You want to repay borrowed funds over a longer period of time.
You need more than $150,000 in capital.
Fundbox provides a flexible business line of credit for borrowers with a credit score of
600
or higher and at least
3
months in business. This revolving line of credit is available in amounts up to $150,000 with repayment terms of
3
or
6
months. You can access funds as soon as the next business day after approval — and unlike some credit lines, you won’t pay draw- or account maintenance fees.
Can be a good option if:
May not be a fit if:
You’re a freelancer, independent contractor or self-employed.
You have less than six months in business.
You have a lower credit score and/or want to avoid a credit check.
You want almost immediate access to funds.
You need more than $5,000 in funding.
You want to build business credit.
You don’t want to pay an origination fee.
Giggle Finance can provide capital up to $5,000 in just minutes. The advance is repaid using automatic debits from your bank account. Giggle is marketed towards freelancers, contractors and self-employed individuals, but can be used by any small-business owner with at least
3
months in operation. Because Giggle uses your bank account to evaluate your eligibility, it doesn’t have any credit requirements — making it a good option if you have a lower credit score.
Best for invoice factoring
Can be a good option if:
May not be a fit if:
You have poor or thin credit, but have creditworthy customers.
You’re a new business.
You’re looking for affordable rates on invoice factoring.
You want access to funds within a few business days.
You’re a business-to-consumer company.
You’re looking for the ability to do one-off factoring transactions.
You don’t want to sacrifice the full value of your invoices for faster access to funds.
You don’t want to give up control of your invoices to a factoring company (In this case, you might try invoice financing instead).
AltLINE offers invoice factoring for business-to-business companies that have outstanding invoices to submit. Like other factoring companies, AltLINE underwrites your application largely based on the creditworthiness of your customers, the age of your receivables and the value of your invoices — as opposed to more traditional requirements. In fact, AltLINE does not set minimum requirements for your personal credit score, time in business or annual revenue. The lender may, however, still consider these factors as part of your application.
Can be a good option if:
May not be a fit if:
You want a bad credit business loan with competitive interest rates.
You want to repay your loan over a year or more.
You’re a women-, minority- or veteran-owned business.
Accion issues business loans with repayment terms of up to
60
months, longer than many other bad credit business loans. Despite its flexible qualification requirements, Accion offers fairly low interest rates, ranging from
8.49
% to
24.99
%.
What is a bad credit business loan?
A bad credit business loan is a loan that’s targeted toward business owners with bad or limited personal credit. A bad credit score, by industry standards, typically lands in the range of 300 to 629 (on a scale of 300 to 850). Personal credit scores ranging from 630 to 689 are generally considered fair credit.
Individual small-business lenders may have varying guidelines for what defines a bad credit score; however, bad credit business loans usually cater to borrowers with scores below 630.
Types of bad credit business loans
There are several types of business loans available for bad credit. These loans may have low credit score requirements or include collateral, which can make it easier for bad credit borrowers to qualify.
A short-term business loan is a lump sum of capital you borrow from a lender and repay, over a set period of time, with interest. These loans typically have repayment terms ranging from three to 12 months, but may extend as long as 24 months. Short-term business loans can be used for short-term expenses, as well as specific projects or purchases.
Business lines of credit give you access to a set amount of funds, which you can draw from as needed. You only pay interest on the funds you draw, and once you repay what you’ve borrowed, you can continue to draw on the line. A business line of credit may be a good option for working capital needs, managing cash flow gaps or seasonal slows and emergency funding.
Equipment financing is designed specifically for purchasing equipment or machinery for your business. This is a form of asset-based financing where the equipment you purchase serves as collateral on the loan. Because of this security, you may not need to rely as heavily on traditional eligibility criteria to qualify for equipment financing.
Invoice factoring involves selling your outstanding invoices to a factoring company at a discount in exchange for an advance of cash. The factoring company then collects repayment from your customers, and once it receives that payment, it sends you the difference, minus the agreed-upon fees. Invoice factoring companies often have flexible qualification requirements because your invoices provide security on the funding.
Microloans are small-dollar loans, typically available in amounts up to $50,000. These loans are generally issued by nonprofit and community organizations who offer flexible qualification requirements. Many microlenders focus their lending efforts specifically on traditionally underserved borrowers, such as those with bad or no credit.
With a merchant cash advance, you receive an upfront sum of capital that you repay using a percentage of your debit and credit card sales, plus a fee. Because MCAs are repaid automatically, merchant cash advance companies tend to focus on sales and cash flow (as opposed to credit history) when evaluating applications. These products can have high annual percentage rates, however, so you’ll want to consider all other options before turning to a merchant cash advance.
Pros and cons of bad credit business loans
Pros
Can help your business access capital you may otherwise not get to boost operations, grow your business or cover gaps in cash flow.
Offer fast access to capital — some within as little as 12 hours of applying.
Can help build and improve your business credit (if your lender reports on-time payments), which can help you qualify for more business funding in the future.
Cons
Typically have higher rates and fees than traditional loans.
Borrowing limits are usually lower.
May require collateral to offset lender risk.
Where to get business loans with bad credit
Banks and credit unions likely won’t approve you if you have bad credit. But these alternative sources may let you get a business loan with a less-than-ideal credit history.
Online lenders
Most online lenders require a minimum personal credit score from 500 to 660. But a few have no minimum credit score requirement, focusing on factors like your business’s cash flow instead. In general, these lenders offer applications requiring fewer documents, easier approvals and faster funding than other business lending options, but they typically charge higher rates — even for those with good credit.
CDFIs
Acommunity development financial institution, or CDFI, receives government funding to provide banking access to low-income or underserved communities. CDFIs are often banks and credit unions, but they don’t have the same strict credit requirements for lending that those financial institutions have. If you’re eligible for CDFI financing, you could get a competitive interest rate. Funding can be slower than with online lenders, though.
Nonprofit and community lenders
If you have bad credit, you may be able to get a business loan from a nonprofit- or community lender. Because profit isn’t these organizations’ primary driver, they may be more willing to lend to business owners with a thin or uneven credit history. Although these lenders may offer smaller loan amounts than more traditional options, they typically offer competitive interest rates. Most nonprofit and community organizations also provide educational and support resources for small-business owners, including training and mentoring.
How to get a business loan with bad credit
Here are steps you can follow to get a business loan if you have bad credit.
1. Calculate how much debt you can afford
First, you’ll want to determine how much debt you can reasonably afford. Lower credit scores may result in higher interest rates, which can make it difficult to repay a new loan — and leave you worse off financially than you were when you started.
To figure out how much debt you can afford, you should consider how much funding you need, possible interest rates, additional fees, as well as the repayment schedule (daily, weekly or monthly).
Your repayment schedule and term length will dictate the size of your payments, but also how much interest you end up paying. A shorter term means larger payments, but less interest, whereas longer terms mean smaller payments, but more interest over the life of the loan.
2. Check your credit score
If you know that you’ve had credit challenges in the past, it’s more important than ever to know where your score stands before applying for a business loan. You can get a free personal credit score on NerdWallet, as well as pull your credit report from the three major reporting bureaus for free at AnnualCreditReport.com.
Established companies should also check their business credit scores from Experian, Equifax and Dun & Bradstreet.
🤓 Nerdy Tip
The higher your credit score, the easier it will be to get a loan, especially one with competitive rates and terms. If your credit score is lower than you’d like, consider taking time to build it up before continuing your search for financing. Credit building strategies include:
Looking for errors on your credit reports and disputing them with the appropriate credit bureau.
Making debt payments more frequently.
Paying down or paying off debt.
3. Understand additional eligibility requirements
Although business loan requirements vary, most lenders will use similar criteria when evaluating your application. If you have a lower credit score, these other requirements will be even more important to help you access financing.
Most lenders will consider the following:
How long you’ve been in business.
What your annual revenue is.
How strong your cash flow is.
What kind of collateral you can provide.
4. Research and compare bad credit loan options
You may be able to find bad credit business loans from online or nonprofit lenders. As you explore different options, you should compare them based on:
The type of lender you work with may have an effect on building your credit and maximizing your business’s potential for growth. Online lenders can usually streamline your application and offer fast financing, while a CDFI or nonprofit lender may provide hands-on support and offer additional coaching.
APRs on bad credit business loans can vary widely — ranging anywhere between 5% and 99%. You’ll want to consider the total cost of borrowing, including the interest rate and any fees — origination fees, closing fees or prepayment penalties — associated with the loan. If your lender provides a factor rate, you can calculate your APR by adding the fees to your total loan amount, or multiplying the factor rate by the total loan amount.
Some lenders don’t require physical collateral to secure a loan, but they will place a blanket lien on your assets and ask for a personal guarantee. Lenders may not always be upfront about these two items, so it’s a good idea to ask about them in your research.
Some types of loans and lenders fund much faster than others. Online lenders typically offer ultra-streamlined processes and fast deposits. Other lenders may take a few days to collect and process an application and take longer to fund. No matter which type of lender you choose, if you are on a timeline, it’s prudent to let them know as soon as possible.
5. Consider offering collateral or adding a cosigner
Once you’re ready to start the application process, you’ll want to prepare to bolster your business profile in any way possible to help increase your chances of approval.
For example, if you have significant collateral available, consider offering more than the minimum — or offer physical collateral even if the lender doesn’t require it. Your business’s strengths may make your application more attractive to lenders, even if your credit score is lagging.
You might also consider finding a cosigner to help you secure a loan. If you default on the loan, the cosigner assumes responsibility for repayment. The cosigner should have a higher credit score and ideally strong personal assets to improve your chances of approval.
6. Gather your documentation and apply
To complete your loan application, you may need to provide some, if not all, of the following:
Basic information about you and your business.
Personal and business bank statements.
Personal and business tax returns.
Business financial statements.
Detailed information about your collateral, if applicable.
Alternatives to bad credit business loans
If you’re not sure that a bad credit business loan is right for you — or you simply want to explore other options — you might consider the following:
Small-business grants. Grants provide free access to capital that doesn’t need to be repaid. Grant applications can be competitive, but awarding organizations don’t typically evaluate businesses based on their creditworthiness. You can find business grants from federal and state governments, private corporations and nonprofits.
Business credit cards. Business credit cards help you pay for everyday company expenses. If you have a lower credit score, you may still be able to qualify for a secured business credit card — which gives you credit access based on the security deposit you provide.
Crowdfunding. If your business has a strong customer base or large internet presence, you may be able to leverage your network to get financing. You can use a crowdfunding platform to set up a campaign and share it online in order to gather donations for your business. In exchange, you typically offer your supporters something in return; you might offer a new product or exclusive access to an event.
Frequently asked questions
Most lenders require a minimum personal credit score ranging from 500 to 660, but some have no minimum requirement. Your annual revenue and time in business may also be considered on your application. You should always shop around and compare your small-business loan options to get one that fits your needs.
Yes, online lenders, CDFIs and microlenders may offer startup business loans to borrowers with bad credit. However, your options will be limited, and they can be expensive. To qualify, you’ll generally need at least six months in business and a minimum credit score of 500 or higher.
It is possible to get a business loan with a 500 credit score from certain lenders like AltLINE or Expansion Capital Group. Be aware that these loans may have collateral requirements, minimum revenue requirements or high fees.
We’re SmartSpenderTips. And we’re not your typical finance company. We believe that everyone should be able to make financial decisions with confidence. We’re building a team of experts with the knowledge, passion, and skills to make that happen.
