What’s Considered Bad Credit for a Business Loan?
Most lenders review both your personal and business credit scores when determining your eligibility for a small business loan. In general, bad credit refers to a personal FICO score below 670. If your business is new, lenders often rely more heavily on your personal credit history and your credit utilization ratio.
Many lenders are open to applicants with personal credit scores as low as 500 or higher, though interest rates and fees may be higher than traditional bank loans. Shopping around can help secure a better deal. While there are no true “no-credit-check” business loans, it’s worth evaluating whether a personal loan or other funding option is right for your situation—keeping in mind the risks of using personal credit for business purposes. For more background on credit score ranges, see MyFICO’s credit score breakdown for additional clarity.
How to Qualify for a bad credit Business Loan
Traditional banks often shy away from bad credit borrowers, but there are platforms built to serve businesses in this position. Here’s how to boost your chances:
Organize your financial records: Gather bank statements, profit-and-loss reports, tax filings, and merchant processing statements. Showing clear documentation makes underwriting easier.
Highlight consistent revenue: Show steady sales patterns or improving revenue trends. This reassures lenders of your repayment ability and strengthens your cash flow management profile.
Offer collateral or proof of assets: Whether it’s equipment, inventory, or invoices, assets help offset risk and open more doors.
💡 Pro Tip: Prepare your documents in advance to maximize approval odds and speed up the process. To learn more about documentation, check out SBA’s guide on preparing for loans.
Best Business Loans for Bad Credit
Term Loans
Small business term loans provide a lump sum of cash for a variety of needs. Short-term loans often run three to 24 months, while long-term loans can stretch from 10 to even 25 years. Many lenders offer small business loan options that fit a range of repayment abilities and business plans.
Secured Loans
If you have collateral—such as equipment, vehicles, or real estate—you may qualify for a secured business loan. Collateral reduces lender risk and often leads to better rates and terms. Some lenders may also request a personal guarantee for additional security.
Lines of Credit
A revolving line of credit allows you to draw funds up to a set limit, paying interest only on what you use. Some work like a credit card, while others treat each draw as a separate installment loan. These are popular alternative business loans for ongoing needs.
Working Capital Loans
These loans are designed to handle everyday expenses like payroll, inventory, or seasonal dips. They often have more relaxed credit requirements, making them ideal for businesses rebuilding their credit profiles. Many lenders prioritize cash flow over credit score when offering unsecured working capital loans.
Equipment Loans
Whether it’s commercial ovens, trucks, or manufacturing tools, equipment loans let you spread out the cost while using the equipment itself as collateral. This lowers lender risk, so bad credit isn’t a deal-breaker. This type of loan can also help improve annual percentage rate (APR) considerations.
Invoice Factoring
Turn unpaid invoices into fast cash by selling them to a factoring company. Since the invoices themselves act as security, your personal credit score carries less weight. To learn more about invoice factoring, see this Wikipedia article on invoice factoring.
Merchant Cash Advances (MCAs)
An MCA provides a lump sum that’s repaid automatically through your credit card and debit card sales. Lenders look more at your sales figures than your credit history, making this a fast option for businesses with strong daily sales.
Where to Get a Business Loan with Bad Credit
Online Lenders: Many online lenders have streamlined applications and flexible credit requirements, with some even offering same-day funding.
Microlenders: For loans of $50,000 or less, microloans can offer competitive interest rates and lower fees. These microloan programs are ideal for startups or those needing smaller funding options.
CDFIs: Community Development Financial Institutions support small businesses in underserved communities and can be a great resource.
Your Current Bank: If you have an existing relationship with a bank or credit union, they may consider your history and cash flow, even with bad credit.
How to Get a Business Loan with Bad Credit
Step 1: Calculate how much debt you can afford.Low-credit borrowers often face higher rates. Take only what you can repay comfortably. Longer terms reduce payments but increase total interest.
Step 2: Check your credit scores.Review your personal and business credit reports so you know what lenders will see.
Step 3: Improve your credit to get better rates.
Step 4: Consider a cosigner.A cosigner with strong credit can improve your approval chances, but it’s a big responsibility for them. Discuss thoroughly before proceeding.
Step 5: Prepare your application documents.Have these ready:
Business plan
Bank statements
Tax returns
Licenses and registration
EIN
Financial statements (P&L, balance sheet)
Asset and liability lists
Step 6: Offer collateral if available.Equipment, inventory, or accounts receivable can make approval easier.
Step 7: Understand your loan agreement.Review repayment schedules, penalties, and personal guarantee requirements before signing.
How to Compare Bad Credit Business Loans
When exploring your options, focus on:
Loan type: Match your loan to your business needs.
Overall costs: Look at interest rates, fees, and prepayment penalties.
Time to funding: If you need funds quickly, target lenders who can move fast.
Lender reputation: Research reviews and ratings on trusted platforms.
Pros and Cons of Getting a Business Loan with Bad Credit
ProsConsAccess to funds for growth and emergenciesHigher interest rates and feesOpportunity to rebuild credit with on-time paymentsMore scrutiny of financesFlexible products like MCAs and equipment financingSmaller loan amounts in some cases
Alternatives to Bad Credit Business Loans
Small Business Grants: Free money from government programs or nonprofits—highly competitive but worth exploring.
Business Credit Cards for Poor Credit: Easier qualification, can improve credit with on-time payments, but best for short-term needs.
Crowdfunding: Tap into your audience for capital in exchange for rewards or discounts.
